Financial innovation and the failure of securitization

Abstract

After years of rising prices in the real estate market of the United States, an important “correction” has taken place. Even though the crisis began in the “subprime” mortgage sector, it soon extended to the worldwide financial system. Upon examining the eruption and evolution of the crisis, a principle-influencing factor has been the fact that almost 90% of daily transactions in foreign exchange markets are of a speculative nature; before the collapse of the Bretton Woods agreements, a similar percentage corresponded to commercial operations and productive investment. In search of the crisis’s common threads, several aspects are analyzed, such as financial innovation and speculative finance, through “securitization”; the uncertainty that these factors provoked; the way in which the mortgage crisis brought about a contraction in credit, with its severe consequences for worldwide economic growth. These phenomena have combined with a strong decline in the value of the dollar and with a large elevation of the price of oil and other important raw materials; the measures adopted by central banks of the principal countries are also an object of study, as is the responsibility of these institutions in the development of the crisis.