Securitization allows banks to repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film “The Big Short.”
The European Union wants to breathe new life into a financial practice most commonly associated with causing the 2008 financial crisis as it tries to jump-start banks’ lending to the economy.
On Tuesday, the European Commission will publish a package of legislation aiming to revive the industry of “securitization,” after strict postcrisis laws almost stamped out the use of the practice in the bloc.
Securitization is the practice where banks repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film “The Big Short.” The engineering allows banks to move some assets off their balance sheets, giving them more space to extend new loans.
It’s the opposite. Regulation assumes business will do anything they think they can get away with if it will make a buck. A lack of regulation assumes companies won’t do those things.
People think “regulators” allowed this to happen, but actually as “regulators” are agencies established by the government that act upon law. At the time of the 2008 financial crash there were limited or few laws (i.e. regulations) on derivatives. It’s law makers that refused to act.
It seems people are largely unaware of the myriad of regulatory changes that came after 2008 and bernie that applied to derivatives and customer/investor protection in general.
The same set of factors that created 2008 is no longer applicable as the environment has changed. There will surely be new regulatory weaknesses that need to be addressed
Everyone should meet someone that worked in the mortgage industry pre 2008. The number of things that were not only allowed, but perfectly legal were absurd.
A lack of regulations can mean “anything goes,” as in unregulated, or “nothing of this sort is acceptable,” as in illegal. Checking if the illegal thing has been done is often easier than checking if the regulated thing has been done correctly, so making things that are easily abused illegal makes sense if the consequences of breaking those regulations, such as a global depression, are too great.
Financial regulations are written in law, and thus illegal to violate.
I see you’re focusing on semantics, and not the issues raised, which i can only assume is because you have no valid response to the issues and not the wording.
It’s not semantics when what you’re saying doesn’t make sense and is contradictory to reality.
Actually, I am not sure what issue you’re even raising because of how poorly you communicated.
I thought about not responding at all, tbh, but then thought that it’s clear you think there is a some sort of material difference between regulation and law.
pointedly incorrect. and thats my point that checking the illegal thing is the same thing as checking the regulated thing. but you assert there is some difference.
their point is unambiguous to me. it is that it is more complex to check if something was done according to a regulation, compared to checking if it was done at all.
Then allow me to rephrase. Checking if the forbidden thing has been done is often easier than checking if the thing which is allowed, but with many caveats and conditions, has been done correctly.
Thanks for rephrasing. The thing is with regulation when there’s a caveat/condition it’s forbidden not just a correctness check. I think the underlying sentiment is correct, a blanket ban on something is surely easier to enforce than a nuanced approach.
But that’s my whole point since the first post. A blanket ban on securitization just locks away the whole tool when really we should just work to implement effective regulation.
The real problem is that law and subsequent regulation lags behind innovation. Like AI or crypto would be an example. So back in 2008 there was a lot of lag on securitization as an innovation. Subsequent to the crisis, in 2025 market reg is well established on securitization products and derivatives.