Back to the future: 900 years of securitization

Purpose
– Before the 2007 financial crisis, securitized products accounted for half the credit market. Once regarded as one of the biggest financial innovations of the last century, securitization is now viewed as a contributory factor to the crisis. Until recently research has focused on the post-1970s mortgage securitization market. In this paper, I trace the earlier origins of securitization, from the 12th century Genoese compera through to early 20th century efforts. The historical examples highlight unifying themes on risk allocation and complexity. As the future securitization market remains uncertain, it is important to consider lessons to be learned from these historical episodes.

Design/methodology/approach
– This is primarily a survey article that utilizes historical documents to compare/contrast features of securitization with the recent crisis.

Findings
– Improved disclosure is the key element to address recent securitization flaws, but disclosure does not really matter if the entire process is not understood. An examination of historical episodes can be instructive. Forging ahead, any securitization reform needs to address why securitization markets formed, why they failed and how the securitization market can be improved.

Practical implications
– As the future securitization market remains uncertain, it is important to consider lessons to be learned from these historical episodes.

Originality/value
– To the best of my knowledge, this is one of the first research papers that surveys the history of securitization as far back as the twelfth century.