The crisis of 2008 began with the difficulties faced by US households on low incomes, to repay the loans that had been granted to them for the purchase of their homes.
These funds were intended for borrowers who did not have sufficient guarantees to benefit from preferential interest rates ( "prime rate"), but only to less preferential rates ("subprime").
The indebtedness of US households could rely on the extremely low interest rates practiced for years by the Central Bank of the United States (FED) in 2001 after the stock market crisis of values "internet".In addition, loans were rechargeable, which means that regularly, we took into account the increase in value of the property, and the borrower is allowed to réendetter the amount of the increase in the value of its assets.This has boosted the growth of the United States.
Credits "subprime" were backed by a mortgage on the purchased housing, the idea being that the property prices in the US could only climb.In these circumstances, a failure of the borrower should be more than offset by the sale of the mortgaged property.
Other features, these credits have often been granted with variables.Plus rate precisely, financial repayment burdens were lightened very start to attract the borrower.They increase after 2 or 3 years and the borrowing rate was pegged to the Director of the Fed rate.
The US Central Bank has gradually raised interest rates by 1% in 2004 to over 5% in 2006 to reflect the evolution of inflation and US growth.Financial expenses of loans are considerably alourdies.Un growing number of households has not been able to cope.
"Trees are not mounted to the sky" and property prices eventually turn downward in the entire United States.
Result: the value of homes has fallen below the value of credits they were supposed to guarantee.The influx of failures of borrowers and resales mortgaged their homes has accelerated the decline in property prices.Losses have also accumulated on the side of prêteurs.Des specialized credit institutions were the first found in difficulty.
In the summer of 2007, the rate of default on loans "subprime" exceeded 15% against 5% on average during the same period for all mortgage loans in the United States, itself a record figure since 1986.While defaults do not all lead to the bankruptcy of the borrower and the sale of the mortgaged property.But it was estimated in late August 2007 that nearly 1 million borrowers had lost their logement.Cela ultimately could affect about 3 million US households.Based on a failure rate of 15%, the initial assessment of the financial cost of the crisis of "subprime" was 160 billion.Important certainly, but not enough to cause a global financial crisis.
- How is the crisis is internationalized?
The trigger of the crisis therefore lies in a real estate market of sub-compartment américain.Establishments specializing in "subprime" were directly affected and logically.But it is the mutation carried past fifteen years with the so-called securitization, for understanding why and how contagion has occurred.
Securitization involves converting loans granted by a bank in debt securities (bond) that an investor can buy and sell at any time.It is said that these obligations are backed by a portfolio of assets.Issuing banks credits create intermediary companies in which these funds are assets and issuing bonds in return which constitute liabilities.Interest and loan repayments are used to pay the interest on bonds issued and their repayment.These companies are called SPV for "Special Purpose Vehicle" because they have no other corporate purpose and are created in each case.
As for investors, it may be the same banks or other banks, pension funds, hedge funds etc ...
The benefit to the bank is that it does not have to carry the credits.She released them from its balance sheet.It does not have to be a capital reserve in case of repayment difficulties would arise (prudential rules on capital) and can more easily extend new credits.Advantage for investors: they can expect a very good coupling risk / return on obligations.Advantage for the economy in general: the risks taken originally by the bank are transferred to a larger number of investors.In case of shock, it is in principle better absorbed.This mutation of securitization has enabled the funding of the rampant growth of the United States and the entire world after the release of the stock market crisis of values "internet".
The vigilance of banks and real estate brokers who initiated loans to households was lower on the ability of these to properly repay their loans.Banks that "securitize" are less credits.They reward the commission, and then resell the credit.They are the amount and may be less regardantes on quality: the so-called moral hazard played full.This method is that a person or company insured against risk may therefore behave in a more risky than if it were fully exposed to risk.For banks, considering themselves not penalized in case of carelessness in their operations, they take more risk in granting credit or executing market transactions.The framework of regulation and regulation of banking and insurance activities is working to prevent such mechanisms.But it can sometimes lose effectiveness.Thus, monetary policy should help ensure the general crises that may arise from the effects chain of bank failures on the whole system and the economy.But for such a guarantee to banks' nationalization of losses "may result in moral hazard mechanism.
Investment banks that organize the securitization group together "packages" of money they make asset vehicles.They formed "credits packets" "subprime", but also mixed packets, mixing with other subprime mortgages, or loans for other financing (eg LBO investment fund ).
The risk of failure of these packages were supposed to be lower than those of credits taken one by one.This is what gives a very good rating from the rating agencies on bonds issued in return.But this is true only if the risks taken on each loan set in the package are independent of each other.However, risks packetized were not independent: it is called "granular".But because all inter-related to the US real estate market.The decline in US house prices has led to a collapse in the value of vehicle assets.
Contagion and amplification then held to the way were built the obligations undertaken by investors in consideration of asset packages.These were also cut into "slices".Some slices contained higher returns but also higher risk, in that they were the first to be penalized if payment intervened accidents on assets.
These bonds were in principle subscribed by investment funds at risk (hedge funds).Intermediate slices were next and more secure tranches (say "senior") were penalized in the event of a general devaluation of the assets, which was supposed to never intervene.They were subscribed by including more conservative investors (pension fund ...).But the collapse of the assets, even these bonds resulted in the debacle to the surprise of their policyholders, since there there's been no gradual warning by a deterioration in rating.
Additional factor, investors who bought the bonds do not have all bought with cash but by going into debt in turn to benefit from the leverage of debt at low interest rates.These investors, including banks and hedge funds operated somehow "securitization second degree" by creating new vehicles (SIV or "conduits") whose assets was constituted by bonds of first level and whose vehicles liability was established by short-term commercial paper (Asset Backed Commercial Paper or ABCP).It was issued more than 1,000 billion.
That respect, our modest contribution on the financial crisis of 2008.
Frédéric Betta-Akwa
