Introduction

In A Tale of Two Cities, Charles Dickens described the chaotic and brutal period of the French Revolution as the best of times and the worst of times. For the asset securitization market, one might similarly regard the period after the subprime mortgage debacle that caused panic and tremendous financial loss worldwide as the worst of times—the winter of hindsight and reflection. Yet this period can also be viewed as the spring of hope and rebirth, and as the best time to study the concept and practice of asset securitization, to once again make it a powerful financial engine that creates wealth and prosperity.

Over the last 40 years, the asset securitization market has grown and flourished to become the largest sector of the U.S. fixed-income securities market. In the initial development of the asset securitization market in 1970, residential mortgages were the only type of securitized assets. Remarkably, however, since the mid-1980s, many other types of financial assets with a predictable future receivable cash flow began to be utilized as the underlying asset for the issuance of asset-backed securities. These assets include, but are not limited to, commercial mortgages, credit card receivables, auto loans, student loans, equipment leases, and small business loans. By facilitating the funding of consumption and business activities, asset securitization has contributed substantially to the steady growth of the U.S. economy and the increase in the American standard ...

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