Center for Financial Studies: Final Debate of the
Buttonwood Club Debate Competition
A “50 Years of Finance” Event
Topic: Securitization: Is it good or bad?
Refreshments will be served during the program's break.
The Buttonwood Club, located in the Center for Financial Studies at the Rensselaer Lally School of Management, is holding
its Annual Debate Competition. This event is a wonderful opportunity for Rensselaer students to learn, discuss, and debate about a current important issue in the financial industry.
About Securitization: Securitization is the financial practice of pooling various types of contractual debt, such as residential mortgages, commercial mortgages, auto loans, credit card debt obligations, and selling said consolidated debt as bonds, collateralized mortgage obligation (CMOs), mortgage-backed securities (MBS), asset-backed securities (ABS) to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Indeed the multitudes of acronyms have earned these products the title, ‘alphabet soup of securitization.’ The complexity inherent in securitization is criticized for limiting investors’ ability to monitor risk. Competitive securitization markets with multiple players could result in a sharp decline in underwriting standards. Private, competitive mortgage securitization is believed to have played an important role in the 2007 U.S. subprime mortgage crisis. The off-balance sheet treatment for securitizations, coupled with guarantees from the issuer, can hide the extent of leverage of the securitizing firm, thereby facilitating risky capital structures and under-pricing of credit risk. Off-balance sheet securitizations are believed to have played a large role in the high leverage level of U.S. financial institutions before the financial crisis and the need for