Securitization made bankers believe dispersion minimized risk
Evidence
The trick was to lend to Jack, then immediately splice his loan into tiny pieces of debt and sell these pieces on – inside multiple, very complex financial ‘products’ – to unsuspecting buyers far away, who would themselves repackage and sell them on to someone else, and so on. This practice lulled Western bankers into a false sense of safety: Jack’s loan was no longer their problem. Even if Jack defaulted, his loan had been cut into so many tiny pieces that no single banker would bear the brunt of it. The risk had been shared and dispersed and thus minimised, they believed. — Yanis Varoufakis, Technofeudalism, 181
Categorization
- XREF: Connects to the 2008 financial crisis literature and how securitization created systemic fragility. — connects to: Securitization moved loan repayment risk off bank balance sheets to outside investors. — Mark Blyth, Austerity: The History of a Dangerous…, 79; Loan securitization concentrated risk rather than eliminating it. — Mark Blyth, Austerity: The History of a Dangerous…, 80; Confidence in a banker allows lending beyond gold reserves without long-run growth — Mark Blyth, Austerity: The History of a Dangerous…, 294 (+11 more)
- corroborated: 2 independent passages support this claim — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 181
Broader Connections
- Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis
#corroborates(1.00) — Albert Bandura, Moral Disengagement, 1492 - Financialization treats risk as probabilisable, displacing close knowledge of the object valued
#expands(0.95) — Ève Chiapello, Financialisation of Valuation, 35 - Portfolio insurance designed to limit losses can amplify market volatility.
#complicates(0.85) — Shapiro, Susan P., The Social Control of Impersonal Trust, 144