The securitisation of mortgages added a new dimension of…
“The securitisation of mortgages added a new dimension of systemic risk. Financial engineers claimed they were reducing risks through geographic diversification: in fact they were increasing them by creating an agency problem. The agents were more interested in maximising fee income than in protecting the interests of bondholders. That is the verity that was ignored by regulators and market participants alike.”
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
Critiques mortgage securitisation, noting that supposed risk‑reduction via diversification actually heightened systemic risk through agency problems.
In simple terms: Securitisation increased systemic risk via agency problems.
Key Takeaway
Beware hidden risks in financial innovation.
Themes
risk management
systemic risk
agency problem
Mood
analytical
critical
Type
financial
educational
When to use this quote
- banking crises
- investment strategy
- policy design
Key Concepts
financial economics
regulation
Questions to Reflect On
- How can regulators detect hidden agency problems?
- What safeguards reduce systemic risk?
A Different Perspective
Complex solutions can create new risks.