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Akseli, Orkun --- "Was Securitisation the Culprit? Explanation of Legal Processes Behind Creation of Mortgage-backed Sub-prime Securities" [2011] ELECD 610; in Gray, Joanna; Akseli, Orkun (eds), "Financial Regulation in Crisis?" (Edward Elgar Publishing, 2011)

Book Title: Financial Regulation in Crisis?

Editor(s): Gray, Joanna; Akseli, Orkun

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848445543

Section: Chapter 1

Section Title: Was Securitisation the Culprit? Explanation of Legal Processes Behind Creation of Mortgage-backed Sub-prime Securities

Author(s): Akseli, Orkun

Number of pages: 16

Extract:

1. Was securitisation the culprit?
Explanation of legal processes
behind creation of mortgage-
backed sub-prime securities
Orkun Akseli

INTRODUCTION

The recent global credit crisis, the collapse of large investment and
high street banks as well as the nationalisation of Northern Rock
have established that misuse of innovative financing techniques
such as securitisation might pose an unacceptable level of risk for
the global economy. The question is whether securitisation is the
underlying causal element of the global credit crisis. Securitisation
as a financing technique has had a bad press of late.1 It has been seen
as the culprit in the 2007/2008 financial crisis. The complex nature
of securitisation and other structured finance transactions needs to
be understood, along with the fact that that their failure may lead to
the Risk Originator's failure.2 Thus, securitisation should be used
extensively to finance businesses but with caution by people who are
aware of the consequences and complexities inherent in this type of
financing.
The aim of this chapter is to assess whether securitisation is in fact
the reason for the financial crisis. The chapter analyses the signifi-
cance of securitisation as a financing technique which is critical for
raising capital. The recurrent theme is that there is a need for greater
transparency and predictability in securitisation. It was the lack of
transparency and ambiguous pricing of the sub-prime element of
securitised credit risk that caused the crisis in interbank markets.
International harmonisation activities on secured transactions may
provide ...