Exporting Risk: Global Implications of the Securitization of U.S. Housing Debt

The process of securitization has revolutionized the global debt market creating vast investment opportunities while fundamentally altering the dynamics of lending risk. Asset securitization allows risks to be transferred from, mortgage lenders to investors through the sale of mortgage-backed securities. This detachment of risk has led to a lack of accountability within the industry and the creation of the infamous U.S. sub prime mortgage market. This piece examines the effect of securitization on the international capital market focusing on the legal and economic implications of the rise and fall of the U.S. housing market. It argues that this failure is symptomatic of a dysfunctional global debt market which operates without effective regulation or oversight at the international level. The paper considers initiatives aimed at improving the operation of the global investment industry and proposes the creation of an international credit organization empowered to regulate and oversee the flow of global capital. As the U.S. mortgage-back securities market drags the global economy towards a financial crisis the need for international regulation of debt has never been so clear