Securitization, Transparency, and Liquidity

Pagano, Marco; Volpin, Paolo F.

doi:10.1093/rfs/hhs074

Cited by 122 publications

(52 citation statements)

References 37 publications

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“…The same mechanism operated in reverse when housing and security prices started to decline in 2007. The violence of the crisis was aggravated by the freeze of ABS markets, in turn due to the opacity of the pre-crisis securitization process: as soon as asset prices started dropping, the markets for ABS froze because most investors had little idea of their riskiness and feared to be at a disadvantage in trading them (Gorton, 2008(Gorton, , 2010Pagano and Volpin, 2012). Adverse selection created tensions also in interbank markets, where unsecured rates rose persistently above secured rates, as each bank had little idea of how many "toxic assets" other banks held and was afraid of lending unless protected by collateral (Heider and Hoerova, 2009).…”

Section: During the Crisis: Interpretationsmentioning

confidence: 99%

Dealing with Financial Crises: How Much Help from Research?

Pagano

2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractHas economic research been helpful in dealing with the financial crises of the early 2000s? On the whole, the answer is negative, although there are bright spots. Economists have largely failed to predict both crises, largely because most of them were not analytically equipped to understand them, in spite of their recurrence in the last 25 years. In the pre-crisis period, however, there have been important exceptions -theoretical and empirical strands of research that largely laid out the basis for our current thinking about financial crises. Since 2008, a flurry of new studies offered several different interpretations of the US crisis: to some extent, they point to potentially complementary factors, but disagree on their relative importance, and therefore on policy recommendations. Research on the euro debt crisis has so far been much more limited: even Europe-based researchers -including CEPR ones -have often directed their attention more to the US crisis than to that occurring on their doorstep. In terms of impact on policy and regulatory reform, the record is uneven. On the one hand, the swift and massive liquidity provision by central banks in the wake of both crises is, at least partly, to be credited to previous research on the role of central banks as lenders of last resort in crises and on the real effects of bank lending and monetary policy. On the other hand, economists have had limited impact on the reform of prudential and security market regulation. In part, this is due to their neglect of important regulatory choices, which policy-makers are therefore left to take without the guidance of academic research-based analysis.

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Section: During the Crisis: Interpretationsmentioning

confidence: 99%

Dealing with Financial Crises: How Much Help from Research?

Pagano

2014

SSRN Journal

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“…In fact, Pagano and Volpin (2012) argue that ABS issuance was so opaque precisely to allow their placement with a broad set of investors: marketing large amounts of ABS meant selling them also to unsophisticated investors, who could not accurately process the information necessary to price them. In fact, if such information had been released, it would have put them at a disadvantage vis-à-vis the "smart money" that can process it.…”

Section: Shadow Banks and Securitizationmentioning

confidence: 99%

Finance: Economic Lifeblood or Toxin?

Pagano

2013

The Social Value of the Financial Sector

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In the past two decades, academic research has produced a massive amount of evidence highlighting the beneficial role of financial development for growth and for the allocation of investment. Yet, our current vision is dominated by instances of dysfunctional behavior of financial markets associated with acute and widespread crises. This begs the issue of when and why finance stops being the "lifeblood" and turns into a "toxin" for real economic activity. This paper is a tentative first step in this direction. It highlights that this metamorphosis appears to occur when finance becomes "too large" relative to the underlying economy: it then stops contributing to economic growth and starts threatening the solvency of banks and systemic stability. A related question is why regulation is not designed so as to prevent the financial industry from growing above this threshold. I argue that a large part of the answer lies in the symbiosis between politicians and the finance industry.

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“…This behaviour is rationalized by Pagano and Volpin (2009). In their model, issuers may not wish to release complex information about their structured bonds because only few potential buyers are sophisticated enough to understand the pricing implications of such information.…”

Section: Structured Finance Investors and Rating Dependencementioning

confidence: 99%

“…This paper studies empirically how these structured types of securities were valued in the financial markets. This is an important question given the conventional wisdom (e.g., Pagano and Volpin, 2009) that a combination of the following two forces is central to the understanding of the crisis: many investors naively based their investment in structured debt products mainly or solely on agency ratings, and these ratings, in turn, are inherently inflated -not well designed to deliver a proper assessment of the risk characteristics of such securities (Hamerle et al, 2009;Coval et al, 2009a). Hence, a massive mispricing of risk follows (Brennan et al, 2009;Coval et al, 2009b), whose correction later detonated the crisis as investors lost confidence in ratings, structured debt securities found no buyers, and their market froze.…”

Section: Introductionmentioning

confidence: 99%