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Securitization: The “curse” of the Financial System during the 2008 Crisis
- 1 University of Toronto (Mississauga Campus)
- 2 University of Toronto (Mississauga Campus)
- 3 University of Toronto (Mississauga Campus)
- 4 University of Toronto (Mississauga Campus)
* Author to whom correspondence should be addressed.
Abstract
During the 2008 financial crisis, many investment and commercial banks were hit hard. The primary reasons that caused the financial crisis were the abuse of mortgage securitization and the housing bubble. In this paper, our group mainly focused on the potential issue of the mortgage securitization structure and the impact that the abuse of securitization caused. Our group analyzed the correlation between mortgage defaults through the OLS linear regression model. It showed an underestimation of the possibility of defaulting on securitization products (MBS, CDO, etc.). Furthermore, our group analyzed the expansion of this potential risk due to the raised housing bubble. After analyzing the potential risk, our group analyzed the impacts that the securitization caused in macro and micro views. First, our group analyzed vital factors that affect bank performance using the OLS linear regression model. Moreover, based on the change of these critical factors caused by the exposed potential risk from the securitization structure, our group analyzed the bank’s performance during the financial crisis. Second, our group analyzed the macro impacts before, during, and after the financial crisis due to the abuse of securitization. Overall, according to the potential risk in the securitization structure and the macro and micro impacts caused by the exposed potential risk, our group concluded that the abuse of securitization was the “curse” for the whole financial system at that time.
Keywords
the abuse of securitization, securitization structure, financial crisis
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Cite this article
Ran,R.;Niu,Z.;Zhang,Z.;Zhang,Y. (2023). Securitization: The “curse” of the Financial System during the 2008 Crisis. Advances in Economics, Management and Political Sciences,9,38-56.
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