What you talking about Wallis!
The result of the Son of Wallis Challenge is in, and unfortunately my submission didn’t win.
The short article Securitise This! addresses the issue of declining credit quality, created by securitisation. Here is a quote from the announcement:
Russell Bradshaw also addressed securitsation, basing his submission around the vital insight that nothing in the process itself offsets this agency problem because “… credit risk can’t be qualitatively transformed (as assumed within the market based competition for lending), instead it just gets absorbed or transferred.” According to Bradshaw, “… banks receive the right to profit from appropriately containing or avoiding risk, not because of their ability to convert the risk to a less hazardous state.” Therefore “… the turning over of banking functions to a seemingly competitive market has at best yielded superficial hopes of improved customer choice but, more importantly, has masked a more serious issue of the mis-selling of credit and gargantuan risk transfer to the public purse”.
Other submissions also focussed on Securitisation, providing suggestions for reducing moral hazard (i.e. make loan originators more accountable for loan quality) and conflicts of interest (such as on the part of ratings agencies) created by this financial innovation:
This competition comes at an intriguing time for Australia. So far they appear to have avoided the financial crisis, but as Steve Keen has been pointing out for a while, they are harbouring worrying asset price inflation in the housing market. The latest post from Steve about declining lending standards “smacks of desperation”: