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Transparency through Financial Claims with Fingerprints – A Free Market Mechanism for Preventing Mortgage Securitization Induced Financial Crises

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  • Helmut Gründl
  • Thomas Post

Abstract

Lack of transparency in securitization transactions significantly contributed to the severe financial crisis of 2007–2009. To increase transparency we propose a new mechanism: financial claims with fingerprints. They would allow market participants at each stage of the securitization process to obtain easily full information about the underlying original risks and the superior claims that need to be satisfied before receiving their own payoffs. The fingerprint mechanism would considerably enhance transparency in securitization transactions at the expense of some transaction costs, while reducing the need for government involvement in securitization markets.

Suggested Citation

  • Helmut Gründl & Thomas Post, 2009. "Transparency through Financial Claims with Fingerprints – A Free Market Mechanism for Preventing Mortgage Securitization Induced Financial Crises," SFB 649 Discussion Papers SFB649DP2009-018, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2009-018
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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2009-018.pdf
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    References listed on IDEAS

    as
    1. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
    2. Gary Gorton, 2008. "The Panic of 2007," Yale School of Management Working Papers amz2372, Yale School of Management.
    3. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June.
    4. Franke, Günter & Krahnen, Jan Pieter, 2008. "The future of securitization," CFS Working Paper Series 2008/31, Center for Financial Studies (CFS).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial Crisis; Securitization; Mortgage-Backed Securities; Transparency; Opaqueness;

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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