From Innovation to Financial Market Failure: An Anatomy of 18th Century Mortgage-backed Securities

This research project studies the innovation of mortgage-backed securities in the 18th century in order to understand the effects of securitization on financial and real markets.

Since the 2007-2008 financial crisis the allocation and price efficiency of financial markets has been hotly debated. Financial innovation is held responsible for at least some of the recent turmoil, and academics, press and government bodies claim that financial innovation may distort real markets. In the recent financial crisis securitization has played a central role, but little research has been conducted that allows for a better understanding of the process of securitization and its effect on both financial markets and the real markets. This project investigates securitization, cheap credit, financial market failures, and its consequences for the real economy for the period when financial innovations first became widely adopted: the 18th century.