Abstract

http://ssrn.com/abstract=2206996
 
 

Citations (117)



 
 

Footnotes (41)



 


 



The Hidden Costs and Underpinnings of Debt Market Liquidity


Amar V. Bhide


The Fletcher School of Law and Diplomacy

May 30, 2014

Columbia University Center on Capitalism and Society Working Paper No. 79

Abstract:     
This article offers three propositions about the liquidity of financial claims in general and about the liquidity of “securitized” interests in mortgages and other small loans in particular: I) Standardized practices and rules and that restrict the use of detailed case-specific information undergird the liquidity of financial claims. Specifically in the case of mortgages and other small loans, securitization is undergirded by mechanistic lending practices that rely on abridged or condensed information rather than detailed information about borrowers. II) By restricting the use of case-specific details, the practices and rules that undergird the liquidity of financial claims impose hidden costs. In particular, practices that enable securitization impair the underwriting and contracting of small loans and, in conjunction with the liquidity they help create, the practices also promote the hazardous conjoining of risks in the banking system. III) Regulation, more than autonomous technological advances, has underpinned the expansion of liquid markets in the last thirty years. Specifically, small loans have been securitized to an exceptional degree in the US because housing policies, securities laws, and banking rules have favored (a) liquid markets and (b) lending based on condensed or abridged information over relationship-based lending based on case-specific details.

Number of Pages in PDF File: 53

Keywords: securitization, financial stability, financial regulation, liquidity, contracting

JEL Classification: G10, G18, G28, G38, K22, N21

working papers series


Download This Paper

Date posted: January 27, 2013 ; Last revised: May 31, 2014

Suggested Citation

Bhide, Amar V., The Hidden Costs and Underpinnings of Debt Market Liquidity (May 30, 2014). Columbia University Center on Capitalism and Society Working Paper No. 79. Available at SSRN: http://ssrn.com/abstract=2206996 or http://dx.doi.org/10.2139/ssrn.2206996

Contact Information

Amar V. Bhide (Contact Author)
The Fletcher School of Law and Diplomacy ( email )
Cabot 505
160 Packard Avenue
Medford, MA 02155
United States
617-229-5050 (Phone)
HOME PAGE: http://www.bhide.net
Feedback to SSRN


Paper statistics
Abstract Views: 1,379
Downloads: 238
Download Rank: 60,640
Citations:  117
Footnotes:  41

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.296 seconds