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.
Yeah, I thought the big problem was mixing good and bad morrgages together to make the securities look like a higher quality mixed with somewhat unrestrained lending. So you had securities with high ratings containing junk mortgages passed around as a financial asset. When mortgages started to default, all those “high quality” assets began to sour.
Essentially securities are just an asset vehicle and have no intrinsic issues, it was how mortgage securities were being packaged that was an issue.
Bad mortgages, bad ratings agencies, and definitely bad issuers.