Title: The flaws of securitisation

Authors: Lior Jassur, Giampiero Favato, Carole Print

Addresses: Esher, Surrey, UK. ' Corporate Finance and Governance, Henley Business School, University of Reading, Greenlands, Henley-on-Thames, Oxfordshire, RG9 3AU, UK. ' Managing Financial Resources, Henley Business School, University of Reading, Greenlands, Henley-on-Thames, Oxfordshire, RG9 3AU, UK

Abstract: The recent financial crisis highlights the problems that could arise when risk is mispriced and conflicts of interest are not managed properly. Regulators and public opinion blame modern capital markets for what happened, but there is actually nothing new or mysterious about this crisis. The problem lied in the packaging and transferring of risk through securitisation, where embedded conflicts of interest helped spread the mispricing of risk throughout the world. This paper describes key aspects of the securitisation process, provides real-world examples of typical transactions, highlights the main areas of conflicts of interest and outlines lessons for the future.

Keywords: subprime crisis; securitisation; risk transfer; conflicts of interest; financial crisis.

DOI: 10.1504/IJCG.2009.032727

International Journal of Corporate Governance, 2009 Vol.1 No.4, pp.400 - 417

Published online: 18 Apr 2010 *

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