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are often bundled into large securities and sold to institutional investors, sometimes with
guarantees and insurance of various kinds. These securities are extremely useful to both
borrower and lender. From the borrower's point of view, the loan is long term - thirty years.
From the lender's point of view. the loan is completely liquid: one can sell one's mortgage
securities at a moment's notice.
On an international scale, this is massively beneficial. If international investors want to limit
their exposure to Argentine loans, they sell their securities. That will raise interest rates for
Argentine homeowners who want to take out new mortgages - but it doesn't result in a mass
flight of capital out of Argentina.
The overly short term orientation of emerging market financial systems exacerbates international
financial risks in many ways. Deeper, more diversified and longer term capital markets in
emerging markets - symbolized and led by the thirty year mortgage - are safer, better places for
both borrowers and lenders to find the instruments that best meet their respective needs.
There are other ways that international investors could diversify their risks if these instruments
became common. Bundled securities containing Mexican, Argentine, Chilean and Brazilian
mortgages, for example would allow a single investor to reduce the negative impact of a
downturn in any one country. Interregional securities - combining, say, Asia-Pacific with Latin
American mortgages - would allow further diversification of risk.
Making thirty year mortgages widely available would also strengthen the domestic financial
systems of emerging markets. For one thing, any system involving the securitization of
mortgages would involve the imposition of serious lending controls - to ensure that all
mortgages conformed to underwriting guidelines. For another, banking systems resting on lots
of loans to individual homeowners are inherently more stable than systems resting on a handful
of loans to large borrowers. A businessman who has borrowed $10 million to build a mall is
more likely to walk away from the loan if the investment turns sour; a homeowner will do
everything possible to hang onto his or her investment in a house. Similarly, the small
businessman is going to hang onto his dry cleaner or restaurant like grim death. It's more than
an investment; it's a life.
All this allows you to present this as a financial stability strategy: concrete steps to make the
international financial system work better for ordinary people and families - while reducing the
chance of dangerous, expensive financial crises like the 1997-98 experience.
This is also a political stability strategy. The creation of a new homeowner class is one of the
best methods ever discovered to help a society achieve long term political stability.
Homeowners have a stake in the system, a piece of property that is very real and important to
them. They are resistant to crackpot utopian schemes and they are very sensitive to feckless
government policies that raise interest rates or otherwise threaten their security. That's good
news for everybody: governments, investors, the people themselves, and the United States of
America.
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"ocrText": "are often bundled into large securities and sold to institutional investors, sometimes with\nguarantees and insurance of various kinds. These securities are extremely useful to both\nborrower and lender. From the borrower's point of view, the loan is long term - thirty years.\nFrom the lender's point of view. the loan is completely liquid: one can sell one's mortgage\nsecurities at a moment's notice.\nOn an international scale, this is massively beneficial. If international investors want to limit\ntheir exposure to Argentine loans, they sell their securities. That will raise interest rates for\nArgentine homeowners who want to take out new mortgages - but it doesn't result in a mass\nflight of capital out of Argentina.\nThe overly short term orientation of emerging market financial systems exacerbates international\nfinancial risks in many ways. Deeper, more diversified and longer term capital markets in\nemerging markets - symbolized and led by the thirty year mortgage - are safer, better places for\nboth borrowers and lenders to find the instruments that best meet their respective needs.\nThere are other ways that international investors could diversify their risks if these instruments\nbecame common. Bundled securities containing Mexican, Argentine, Chilean and Brazilian\nmortgages, for example would allow a single investor to reduce the negative impact of a\ndownturn in any one country. Interregional securities - combining, say, Asia-Pacific with Latin\nAmerican mortgages - would allow further diversification of risk.\nMaking thirty year mortgages widely available would also strengthen the domestic financial\nsystems of emerging markets. For one thing, any system involving the securitization of\nmortgages would involve the imposition of serious lending controls - to ensure that all\nmortgages conformed to underwriting guidelines. For another, banking systems resting on lots\nof loans to individual homeowners are inherently more stable than systems resting on a handful\nof loans to large borrowers. A businessman who has borrowed $10 million to build a mall is\nmore likely to walk away from the loan if the investment turns sour; a homeowner will do\neverything possible to hang onto his or her investment in a house. Similarly, the small\nbusinessman is going to hang onto his dry cleaner or restaurant like grim death. It's more than\nan investment; it's a life.\nAll this allows you to present this as a financial stability strategy: concrete steps to make the\ninternational financial system work better for ordinary people and families - while reducing the\nchance of dangerous, expensive financial crises like the 1997-98 experience.\nThis is also a political stability strategy. The creation of a new homeowner class is one of the\nbest methods ever discovered to help a society achieve long term political stability.\nHomeowners have a stake in the system, a piece of property that is very real and important to\nthem. They are resistant to crackpot utopian schemes and they are very sensitive to feckless\ngovernment policies that raise interest rates or otherwise threaten their security. That's good\nnews for everybody: governments, investors, the people themselves, and the United States of\nAmerica."
}