this post was submitted on 17 Jun 2025

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354

EU resurrects banking practice that caused the 2008 financial crisis (www.politico.eu)

submitted 1 week ago* (last edited 1 week ago) by MicroWave@lemmy.world to c/world@lemmy.world

34 comments fedilink hide all child comments

Securitization allows banks to repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film “The Big Short.”

The European Union wants to breathe new life into a financial practice most commonly associated with causing the 2008 financial crisis as it tries to jump-start banks’ lending to the economy.

On Tuesday, the European Commission will publish a package of legislation aiming to revive the industry of “securitization,” after strict postcrisis laws almost stamped out the use of the practice in the bloc.

Securitization is the practice where banks repackage and resell debt, famously explained by actress Margot Robbie in a bubble bath in the film "The Big Short." The engineering allows banks to move some assets off their balance sheets, giving them more space to extend new loans.

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[–] Album@lemmy.ca 46 points 1 week ago* (last edited 1 week ago) (5 children)

Securitization is a tool and only part of why the markets collapsed. The reduction of the problem to securitization fails to recognize the bad loans and ineffective ratings given to collateralized securities, and the hidden tranches not disclosed to investors.

If your mortgage/loan market isn't fraudulent then you don't have underlying assets with impossibly high risk. If the ratings agencies properly rate securities then investors know what the risk is. And if the government regulates the issuance of these securities through prospectuses (which they do now) then investors will know what's in them.

[–] GreyEyedGhost@lemmy.ca 11 points 1 week ago (1 children)

It also assumes that businesses won't do anything they think they can get away with if they think it will make a buck. Given just how many times that has happened, saying regulators will catch any attempts to sidestep those rules is fairly optimistic, in my opinion.

[–] Album@lemmy.ca 3 points 1 week ago (2 children)

It's the opposite. Regulation assumes business will do anything they think they can get away with if it will make a buck. A lack of regulation assumes companies won't do those things.

People think "regulators" allowed this to happen, but actually as "regulators" are agencies established by the government that act upon law. At the time of the 2008 financial crash there were limited or few laws (i.e. regulations) on derivatives. It's law makers that refused to act.

It seems people are largely unaware of the myriad of regulatory changes that came after 2008 and bernie that applied to derivatives and customer/investor protection in general.

The same set of factors that created 2008 is no longer applicable as the environment has changed. There will surely be new regulatory weaknesses that need to be addressed

[–] ryathal@sh.itjust.works 5 points 1 week ago

Everyone should meet someone that worked in the mortgage industry pre 2008. The number of things that were not only allowed, but perfectly legal were absurd.

appraisal was basically a bribe for any number you wanted.
no document loans were far more available for anyone.
mortgages had no real chain of custody after sale.
there wasn't any real way to verify the risk of a mortgage security pre 2008.
variable rates didn't have lifetime caps on rates, and reporting the details of how they functioned weren't required.

[–] GreyEyedGhost@lemmy.ca 3 points 1 week ago (1 children)

A lack of regulations can mean "anything goes," as in unregulated, or "nothing of this sort is acceptable," as in illegal. Checking if the illegal thing has been done is often easier than checking if the regulated thing has been done correctly, so making things that are easily abused illegal makes sense if the consequences of breaking those regulations, such as a global depression, are too great.

[–] Album@lemmy.ca 0 points 1 week ago (1 children)

Financial regulations are written in law, and thus illegal to violate.

[–] GreyEyedGhost@lemmy.ca 1 points 1 week ago (1 children)

I see you're focusing on semantics, and not the issues raised, which i can only assume is because you have no valid response to the issues and not the wording.

[–] Album@lemmy.ca 0 points 1 week ago (2 children)

It's not semantics when what you're saying doesn't make sense and is contradictory to reality.

Actually, I am not sure what issue you're even raising because of how poorly you communicated.

I thought about not responding at all, tbh, but then thought that it's clear you think there is a some sort of material difference between regulation and law.

Checking if the illegal thing has been done is often easier than checking if the regulated thing has been done correctly,

pointedly incorrect. and thats my point that checking the illegal thing is the same thing as checking the regulated thing. but you assert there is some difference.

[–] GreyEyedGhost@lemmy.ca 2 points 1 week ago (1 children)

Then allow me to rephrase. Checking if the forbidden thing has been done is often easier than checking if the thing which is allowed, but with many caveats and conditions, has been done correctly.

[–] Album@lemmy.ca 1 points 1 week ago* (last edited 1 week ago)

Thanks for rephrasing. The thing is with regulation when there's a caveat/condition it's forbidden not just a correctness check. I think the underlying sentiment is correct, a blanket ban on something is surely easier to enforce than a nuanced approach.

But that's my whole point since the first post. A blanket ban on securitization just locks away the whole tool when really we should just work to implement effective regulation.

The real problem is that law and subsequent regulation lags behind innovation. Like AI or crypto would be an example. So back in 2008 there was a lot of lag on securitization as an innovation. Subsequent to the crisis, in 2025 market reg is well established on securitization products and derivatives.

[–] WhyJiffie@sh.itjust.works 2 points 1 week ago

their point is unambiguous to me. it is that it is more complex to check if something was done according to a regulation, compared to checking if it was done at all.

[–] Deflated0ne@lemmy.world 1 points 1 week ago (2 children)

That's kinda like saying that the water in the ocean is part of why fish are able to swim.

[–] Album@lemmy.ca 2 points 1 week ago* (last edited 1 week ago)

No that's a bad analogy because no one is arguing the water should be taken away because of a misguided understanding that it's inherently dangerous.

The actual analogy is "People have died in water, so no one should swim anymore"

But that's obviously absurd. You hire life guards, teach people to swim, get a life vest, life savers, etc

[–] ryathal@sh.itjust.works 1 points 1 week ago

No, it's like saying fire extinguishers are bad because someone replaced the real ones with gag ones in a building that burned down.

[–] jacksilver@lemmy.world 1 points 1 week ago (1 children)

Yeah, I thought the big problem was mixing good and bad morrgages together to make the securities look like a higher quality mixed with somewhat unrestrained lending. So you had securities with high ratings containing junk mortgages passed around as a financial asset. When mortgages started to default, all those "high quality" assets began to sour.

Essentially securities are just an asset vehicle and have no intrinsic issues, it was how mortgage securities were being packaged that was an issue.

[–] Album@lemmy.ca 2 points 1 week ago

Bad mortgages, bad ratings agencies, and definitely bad issuers.

[–] Sineljora@sh.itjust.works 0 points 1 week ago

The markets are still fraudulent. The fines are really just a cost of doing business.

[–] Etterra@discuss.online 30 points 1 week ago (1 children)

What could possibly go right?

[–] aphonefriend@lemmy.dbzer0.com 7 points 1 week ago

But money.

[–] Deflated0ne@lemmy.world 29 points 1 week ago

The US never stopped. Never even slowed down. They literally just changed the name. I am 100% serious.

[–] nutsack@lemmy.dbzer0.com 22 points 1 week ago (1 children)

a few guys make money and thousands of regular people lose their retirement savings. cool

[–] skozzii@lemmy.ca 5 points 1 week ago

Following the lead of America.

[–] Buske@lemmy.world 19 points 1 week ago

Ahh yes, roll back all the protections right before the big crash.

[–] Luouth@lemmy.world 15 points 1 week ago

"Breathe life" sounds more like a failed CPR attempt. There should be a DNACPR in place to preserve Europe's banking sector's dignity

[–] dubyakay@lemmy.ca 14 points 1 week ago* (last edited 1 week ago) (1 children)

We need esteemed actress @MargotRobbie@lemm.ee in here.

[–] Soggy@lemmy.world 5 points 1 week ago (1 children)

Hasn't posted in a few months, must be busy with that Ocean's Eleven project.

[–] samus12345@sh.itjust.works 3 points 1 week ago

She's gonna have to use her .world account if she comes back.

[–] HowRu68@lemmy.world 8 points 1 week ago* (last edited 1 week ago)

I don't mind creating a proper European security investment market. But I most definitely mind an uncontrolled asset derivatives markets, which when abused, (and it will becasue they can) will most probably lead to a new financial crisis.

"The ECB also called on the Commission to draw on “the lessons of the global financial crisis, when opaque and complex securitisations led to excessive risk-taking,” warning that the EU should “ensure that securitisation does not create excessive leverage in the financial system by fuelling asset bubbles and hiding risks on bank balance sheets.

[–] Dasus@lemmy.world 2 points 1 week ago

collapsed inline media

[–] webghost0101@sopuli.xyz 2 points 1 week ago* (last edited 1 week ago)

So to summarize.

They want us to trade resources to transfer the ownership of “a measurement” of an entity its irresponsible behaviour with resources to a different entity.

This somehow makes it more likely that the institutions with the most economic resources let others use those resources for a small long term profit to those institutions?

Ands this does what exactly for the common human or the wellbeing and natural resources of the shared planet?

For all i understand this can create world peace but i am gonna need someone to explain that one to me if that is the case.

[–] davidagain@lemmy.world 2 points 1 week ago* (last edited 1 week ago)

Don't do this, EU. You're better than this.