Op-eds

Securitization Shouldn’t Be the Government’s Business: Op-Ed by Prof. Amar Bhide

Bloomberg View

Amar Bhidé is Thomas Schmidheiny Professor at The Fletcher School of Law and Diplomacy, Tufts University.

As we should have learned from the 2008 financial crisis, the mass production of securitized credit enables reckless borrowing, shortchanges productive businesses and destabilizes banks. It has been nourished by regulation, not its inherent economic advantages. Yet officials in Washington continue to favor this top-down misdirection of credit.

To end this bias before it does any more damage, the federal government needs to get out of the securitization business altogether.

The infatuation with securitization goes back 25 years. In 1987, Lowell Bryan, a McKinsey & Co. director, argued that securitized credit would transform banking fundamentals that hadn’t changed since medieval times. Since then, many cheerleaders in academia and the financial industry have extolled the virtues of securitization, arguing that by combining advances in financial and computing know-how, it slashes the costs of lending, improves the evaluation and distribution of risks, makes credit decisions more transparent, increases liquidity, and so on.

Read the full op-ed