A graphic with no description

At the heart of the crisis was a collection of obscure acronyms which turned out to be WMD, weapons of mass financial destruction. Everyday loans, for cars, houses or office buildings, were rolled up into bundles which were then sliced into asset backed securities, or ABS.

The technique powered a surge in easy lending, particularly residential mortgage-backed securities (RMBS) which led to the housing boom and bust. In the decade since, the share of loans being securitised has dwindled.

A graphic with no description

Collateralised debt obligations took the securitisation a step further, packaging and slicing up existing ABS to create even more fragile structures. Of the CDOs rated by Standard & Poor’s, 70 per cent defaulted, for instance by missing an interest payment.

A graphic with no description

There is one place in the world, however, where use of securitisation is rapidly growing.

A graphic with no description

Get alerts on Markets when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article