If Banks MUST keep their CDSs here's a way to remove the risk of another housing bubble

[Bill USA]

46. I was thinking of "mortgage securitization" which began in the 1970's by Fannie Mae

Even then, securitization didn't really get going in terms of significant volume, really until the 1980's. When CDSs were invented in 1997 they were used to help sell CDOs with subprime mortgages and then (after the Commodities Futures Modernization Act was passed in 2000 making trading in CDSs by banks legal and unregulated) securitization really took off.

YOu are right Fannie Mae began back in 1938 (Freddie Mac began business with passage of the Emergency Home Finance Act of 1970). my point was that Securitiztion itself worked okay since the 80's (when significant volumes were being sold). It was when the unregulated use of CDSs 'lit a fire under' the marketing of Subprime CDOs that the problems emerged. Banks found this a very lucrative trade and didn't want rating agencies ruining the party - so the 'made sure' they got the proper unrealistic credit ratings of their moneymaking subprime CDOs from S&P and Moody's.


http://en.wikipedia.org/wiki/Mortgage-backed_security

Ginnie Mae guaranteed the first mortgage pass-through security of an approved lender in 1968.[16] In 1971, Freddie Mac issued its first mortgage pass-through, called a participation certificate, composed primarily of private mortgages.[16] In 1981, Fannie Mae issued its first mortgage pass-through, called a mortgage-backed security.[17] In 1983, Freddie Mac issued the first collateralized mortgage obligation.[18]
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