Comments on: Liquidity in the Australian http://economics.com.au/?p=1794&utm_source=rss&utm_medium=rss&utm_campaign=liquidity-in-the-australian Commentary on economics, strategy and more Thu, 09 Sep 2010 11:08:40 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: a student http://economics.com.au/?p=1794&cpage=1#comment-132466 a student Thu, 02 Oct 2008 02:35:19 +0000 http://economics.com.au/?p=1794#comment-132466 OK, I still haven't made my mind up about the broader proposal, but I'm not sure you can invoke the lemons model here as a defense. The securities here are very safe so there seems to be little asymmetry of knowledge (the folks over at Marginal Revolution think that the whole asymmetric information thing is overblown). If you do think there is some asymmetric information about the quality, then securitisation introduces moral hazard. If the originators don't face the repayment risk, they have less incentive to make sure the borrowers are credit worthy. OK, I still haven’t made my mind up about the broader proposal, but I’m not sure you can invoke the lemons model here as a defense. The securities here are very safe so there seems to be little asymmetry of knowledge (the folks over at Marginal Revolution think that the whole asymmetric information thing is overblown).

If you do think there is some asymmetric information about the quality, then securitisation introduces moral hazard. If the originators don’t face the repayment risk, they have less incentive to make sure the borrowers are credit worthy.

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