Mortgage securities and lessons from the crash
Ten years on from the financial crisis of 2008, following the implosion of Lehman Brothers, we are running some reflections on the causes and links to securitised mortgages, from the deans of leading business schools.
Two of the deans, Professor George Feiger of Aston, featured in our video interview on this blog, and Mark Taylor of WBS (now Dean of John M Olin Business School at Washington University, St. Louis) who spoke at our behavioural economics forum at The Gherkin - both saw 'active service' in leadership roles in financial services before joining management schools. George Feiger's former roles included Senior Partner at McKinsey and Global Head of Investment Banking at SBC Warburg before becoming Dean of Aston Business School. Mark Taylor was a managing director at Blackrock, where he led the European arm of a large global macro investment fund.
This weekend, Gillian Tett wrote in the Financial Times how Japanese central bankers had been much more concerned about US mortgage markets in 2007 than their western counterparts. This was largely, she wrote, because of the harsh lessons from their own crisis in 1997 "sparked by $1 trillion of bad loans left by Japan's 1980s real estate 'baburu keiki' or bubble."
Our first video clip is from George, who describes in the interview, how in his view, most of the quantitative trading desks at US and UK investment banks had little knowledge of the origins and actual quality of the mortgage loans they were trading in 2007 as bonds.
Please watch George (above) discuss his belief that the seeds of a crisis were sown in ordinary mortgages bundled-up and packaged for bond trading.