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Is There a Problem With Mortgage Securitization?

By Matthew Yglesias on March 27, 2009 at 5:14 pm

"Is There a Problem With Mortgage Securitization?"

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I’m broadly sympathetic to the larger theme of today’s Paul Krugman column, but his specific claim that there’s some grave problem with the very fact of mortgage securitization doesn’t seem to hold much water. This appears to contradict earlier statements of Krugman’s and Felix Salmon is convincing that the problems Krugman is pointing to had to do with synthetic CDOs rather than securitized mortgages.

More broadly, I think focusing on the specific instruments through which a bubble in home prices was transmitted into risk at financial institutions is misguided. Bubble plus leverage equals blowup, and though in any given case there’ll be one particular transmission mechanism, if we had blocked some particular path it still probably would have found another way.

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