Designing securities and calculating credit ratings

Designing Securities and Calculating Credit Ratings

The securitization of residential mortgage loans started a number of decades ago in the United States, but was nonetheless said to be at the origins of the global financial crisis of 2007-present. I will examine the importance of information and the argument that securitization per se was not the problem, but that securitization got out of hand when securitizers and credit rating agencies ignored the fundamentals of mortgage lending in the production of residential mortgage-backed securities (RMBS). My research demonstrates how RMBS were co-designed by credit rating agencies and their ratings were co-produced by investment banks, thereby highlighting the importance of local socio-technical chains in global finance.