The Crisis of Credit and Securitization

TISCO Working Paper Series on Banking, Finance and Services No. 02/2012

9 Pages Posted: 1 May 2012 Last revised: 31 Jan 2013

See all articles by Reinout M. Wibier

Reinout M. Wibier

Tilburg Law School; Tilburg University; European Banking Center

Date Written: January 1, 2012


It is almost impossible to really understand the crisis of credit without having an idea of how securitization transactions work. In a way (and this is of course a simplification), the crisis of credit is no more than an old fashioned asset price bubble. Subsequently it was a downturn in the housing market that triggered the start of the crisis.

There are two closely connected developments that cannot be ignored in this connection. The first is the rise of securitization transactions and the second factor is the rise of sub-prime loans, i.e. loans to risky borrowers or with other risky characteristics such as a relatively high loan in relation to the value of the property. There is no denying it. This articles shows that securitizations and the complex financial products that were based on or derived from these transactions served as a conduit to infect the entire financial system when a relatively small problem arose. The consequences of this small problem became enormous,something which probably would not have happened if securitizations had never been invented.

Nevertheless, in my view securitizations were, are and continue to be a legitimate way of funding loans to homeowners. Prohibiting these types of transactions would be a far too simplistic solution for the crisis of credit and will probably not be beneficial at all in preventing future crisis. Moreover, it would lead to higher costs of capital and thus for higher interest rates for anyone purchasing a home.

Keywords: credit crisis, private law, securitization, financial products, financial services, sub-prime loans

Suggested Citation

Wibier, Reinout M., The Crisis of Credit and Securitization (January 1, 2012). TISCO Working Paper Series on Banking, Finance and Services No. 02/2012, Available at SSRN: or

Reinout M. Wibier (Contact Author)

Tilburg Law School ( email )

Tilburg, 5000 LE

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE

European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE

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