Not long ago, the tremendous growth of asset securitisation around the world, coupled with an increasing complexity in structured finance, was widely seen as the rise of a new era in market finance. In this new world, according to many, financial intermediaries would divest themselves of their balance sheets and transfer an ever larger share of originated risks to the capital markets. Using these new tools of structured finance, loans and bonds were repackaged (pooled and tranched) and sold to sophisticated and unsophisticated investors.
Or, as Alan Greenspan put it in a speech on September 27, 2005: “The new instruments of risk dispersal have enabled the largest and most sophisticated banks, in their credit-granting role, to divest themselves of much credit risk by passing it to institutions with far less leverage.”