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Securitisation is a policy response to the credit crisis but predicated upon open stress testing

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In a recent blog post;

European Parliament debate on CAD3 -The Future of Securitisation

We at Asymptotix stuck our neck out and said that between the lines.

“ ….. clearly the argument about whether securitisation activity should be legislated out of existence or not, has been settled at a policy level both in the [European] parliament and the Commission. This is the first hint of more policy (and consequent enabling legislation) to come in that space, possibly including enabling legislation, similar to the CDS market initiative; clearly the Commission (and the parliament) have fully realised that Europe is dead without a wholesale Credit Market, i.e. a market in Structured Products but what we are going to see is a European ‘joined up’ market subsuming the unique German Pfandbreife process into common standards of supervision, transparency and market operation in Europe for Structured Products and Wholesale Credit Markets.” 

This morning, I attended the Brussels Economic Forum (organised by the European Commission, DG ECFIN). Jose Vinals gave the keynote speech; he is Director, Monetary and Capital Markets at the IMF; he was appointed at the end of March this year, having been Deputy Governor at the Bank of Spain since July 2006, he holds a PhD. in economics from Harvard. He knows a thing or two about what he is talking about!

In a wide ranging speech deconstructing the policy of the IMF to banking supervision going forward Vinals made one key point (among many), which is that of a three pillar policy response of the IMF to the crisis, pillar one for the IMF is the policy question, how can Securitisation Markets be restarted, how quickly and in what manner can they be made transparent and amenable to supervision?

He continued in the Q&A that he sees Stress Testing as an aspect of Transparency and Supervision but a pointless exercise if not Open and explicable, he pointed out that Governments conducting Stress Testing in a closed (‘private language’) fashion are positioned in exactly the same hateful place as the Ratings Agencies! Stress Tests as a purely political exercise are counter-productive. Jose Vinals

He argued that "we need to know that we know" that Stress testing is Open and that techniques are common. This Openness is the second pillar of the IMF policy response to the crisis, Disclosure. As Jose Vinals argued in conclusion (and as asymptoix has argued repeatedly for months) “financial innovation is GOOD!” We need to scrutinize Financial Innovation in an Open fashion, we need to scrutinize and explain the concept of triple-A, we need to blow away the smoke and mirrors with Openness!

This logic takes us to another neck-out recent post by Asymptotix:

Is the European Union legislating the Ratings process towards an Open Source Model

& provides, not only the answer yes but also the context why!

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