Measuring Globalisation: OECD Economic Globalisation Indicators 2010
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branch I. Globalisation and the Crisis
branch A. Globalisation and the Financial Crisis
    branch A.2. The financial crisis in the United States

The US household savings rate, which was already among the lowest in the OECD area, turned negative in 2005, owing to the build-up of large debts for housing. Rising housing prices created a "wealth effect" which encouraged households to contract excessive amounts of debt. In the United States between 2003 and 2008, mortgage debt increased strongly, with outstanding home mortgages nearly doubling.

Property prices in the United States rose by over 35% between 2000 and 2006, levelled off in 2006 but started to fall in 2007. House prices started to fall in several countries in 2008 but the adverse effects of the decline on consumption are likely to be greater in countries where mortgage lending was abundant such as the United States. Mortgage debt combined with falling house prices triggered the subprime crisis. Subprime mortgages allowed poorer people and riskier borrowers to obtain mortgage loans on the assumption that their ability to finance their homes was ensured by the capital gains inherent in rising property prices.

Extensive securitisation, especially in the United States, enabled banks to pool and transfer risk. Securitisation expanded the supply of credit but caused risk to be under-assessed. This was then compounded by the use of intermediate lenders that were neither regulated nor supervised. Credit risk was thus transferred out of the banking system to unregulated and non-transparent lenders. This eventually undermined the stability of the financial system.

Securitisation was a key factor because it created high-risk, illiquid assets in the form of complex financial securities. Securitisation was employed extensively in the United States in 2007 but fell sharply in 2008. In Europe, however, securitisation was relatively modest in 2007 but started to rise in 2008, especially in the last quarter, when it outstripped the level in the United States.


US Bureau of Economic Analysis, January 2010.

OECD, OECD Economic Outlook No. 86, December 2009.

Board of Governors of the Federal Reserve System, January 2010.

Association for Financial Markets in Europe/European Securitisation Forum, January 2010.

Blanchard, O. (2009), The Crisis: Basic Mechanisms and Appropriate Policies, IMF Working Paper.

OECD Journal: Financial Market Trends, various issues 2007-2009.


Asset-backed securities (ABSs) are created from a portfolio of assets (corporate bonds, consumer credit, mortgage loans, export credits, etc.). They are based on real and apprehendable risk. Being negotiable, they transform illiquid or privately traded loans into securities that may generate frequent and regular listing and a secondary market. ABSs are generally specialised. An ABS corresponding to a mortgage loan will group together a portfolio of property loans. These loans are classified by order of priority into three tranches: the most risky, representing a small percentage of the total, those representing an intermediate risk, and tranches that suffer losses only if the entire portfolio fails.

Collateralised debt obligations (CDOs) are securities created in the same way as ABSs but from corporate bonds. ABS CDOs were formed after the intermediate risk tranche was found to be harder to sell to investors than the tranches on either side. This gave rise to the idea of mixing the intermediate tranches of several ABSs and slicing them up again into three tranches of rising risk: low, medium and high. This division in tranches has been one of the most toxic aspects of the subprime securitisation crisis.

A credit default swap (CDS) is a contract whereby a lender insures against the risk of a company defaulting or going bankrupt. By paying a premium, the lender obtains the right to sell a bond issued by the company to the insurer at its face value. If the company goes bankrupt, the contract provides for either transfer of the bond or a cash payment. The CDS price indicates the confidence placed in the debt issuer and serves as a basis for setting the value of the debt product. CDOs have dried up since the crisis but CDSs are still listed and traded, though they are regarded as risky.

Mortgage-backed securities (MBSs) are securities backed by a pool of subprime, Alt-A or prime mortgage loans. Holders of MBSs receive the repayments of capital and the interest on the underlying loans. Securitisation involves transforming loans into financial securities by means of a three-stage operation.

Indicator in PDF Acrobat PDF page

A.2.1 Individual savings as a percentage of individual available income in the United States Figure in Excel
Individual savings as a percentage of individual available income in the United States
A.2.2 Real housing prices in the United States Figure in Excel
Real housing prices in the United States
A.2.3 Home mortgage debt outstanding in the United States Figure in Excel
Home mortgage debt outstanding in the United States
A.2.4 Debt securitisation in the United States and Europe Figure in Excel
Debt securitisation in the United States and Europe

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