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This chapter examines the factors that led to the near collapse of the financial system in late 2007. The global financial crisis, or the Great Recession, was triggered by the collapse of the housing market and the impact of unpaid subprime mortgages on securitized debt in the United States. It was the third business cycle in a row rooted in an asset bubble and was far worse than might have been thought from the dollar amount of underlying mortgages involved. Some economists are so adamant that the crisis was caused by insufficient supervision and regulation of financial markets that they suggest that other leading candidates are “misconceptions.” To understand what went wrong, this chapter looks at the incentives of decision makers, particularly the government and the Federal Reserve. It then discusses the events leading to the financial crisis and proceeds by discussing government regulation of the banking sector under the Bush administration as well as the government's efforts to address the banks' capital ratios.

This chapter begins by providing a brief background on debt markets and investments including basic bond terminology and market sectors. It also discusses bond risks and products including securitized products. The chapter then explains the book’s purpose, its distinguishing features, and intended audience. Next, it outlines the book’s structure consisting of eight parts: (1) background, (2) market sectors, (3) yield curves, swap curves, and interest rate models, (4) bond products, (5) securitized products, (6) bond valuation and analysis, (7) special topics, and (8) strategies, portfolio management, and future outlook. The chapter then presents an abstract of each chapter within its appropriate topic heading. The final section offers a summary and conclusions.

Securitized debt markets play a vital role in financial markets in risk-sharing and creating alternative financing sources, which provide benefits for both borrower and lenders. This chapter describes the main characteristics of securitized debt and securitized debt instruments. Major securitized debt instruments are mortgage-backed securities (MBSs) including residential mortgage-backed securities (RMBSs) and commercial mortgage-backed securities (CMBSs) as well as asset backed commercial paper (ABCP) and collateralized debt obligations (CDOs). The characteristics of these securities, their associated benefits and uses, and the risk factors that determine the performance of securitized debt instruments are covered. The evolution and size of these securitized markets is also discussed. Overall, the chapter indicates that securitized markets help originators in transferring risks and monetizing illiquid assets and aid investors by providing an efficient mechanism for portfolio diversification and ability to better adjust their investments to their risk preferences.

This chapter explores the various issues associated with non-agency mortgage securitizations, with a view toward assessing the future viability of this sector of the securitized markets through examining issues on both the supply and demand side. The supply of non-agency mortgage-backed securities (MBS) has been a trickle and the market continues to languish at a fraction of the volumes attained prior to the global financial crisis. The only significant source of non-agency MBS supply has been securitizations by some non-bank financial institutions, such as real estate investment trusts (REITs), which are collateralized by assets of very high credit quality. Since such entities use securities markets as a funding source, the inclusion of regulatory, disclosure, and compliance costs along with higher subordination levels likely make the securitization option uneconomic. The participants in this market are likely to be mainly REITs.

This chapter assesses the new regulations that have sought to increase transparency in the market for securitized assets and to better align the incentives facing different classes of market participants. The financial crisis of 2007–9 revealed problems with underwriting standards in mortgage markets that spread to the mortgage-backed securities (MBS) and asset-backed securities (ABS) markets more broadly. In 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to answer these issues. The Act extended beyond the securitization and offering process for the issuance of ABS, creating requirements for ongoing disclosures, some applying to ABS issuers and others to the credit rating agencies that periodically assess the credit quality of ABS and other fixed-income assets.

This chapter examines the “scandalous economics” of the global financial crisis (GFC) by interrogating the ways that accounts of the crisis have represented, co-opted, and exploited human bodies. The chapter asks how representations of crisis continue to reveal economic and power relations, and how these relations are embodied in certain gendered logics and effects. Conventional accounts of global finance and the GFC have served (and have been actively designed) to reinscribe existing logics of capital mobility while circumventing valid social concerns and questions (regarding, for example, the prolonged chain of ir/responsibility for repackaged, “securitized,” loans and the political effects of this practice). This chapter aims to deconstruct how and where ideas about gendered bodies are being used in the service of crisis governance, and to what ends, in order to understand the space(s), shape(s), techniques, and possible effects of the governance of financial crisis in the contemporary global political economy.