America's plan to put out blazes in the credit markets
HOW do you fight a conflagration when smaller blazes erupt almost daily? Unenviable though the task must seem, several regulatory bodies are having a go with credit markets. On Thursday March 13th the first of them, the President’s Working Group on Financial Markets (PWG), unveiled its blueprint for reform after nearly seven months of deliberation.
Though the crisis is far from over, its causes have long been clear. Securitisation—the packaging of bank loans into tradable bonds—grew too complex. The incentives of those involved, especially loan originators, were warped. Lending standards plummeted as a result, not only in mortgages but in credit cards and corporate lending too. Investors over-reached for yield as interest rates fell. Everyone focused on credit ratings rather than the underlying credits...
