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| Author: | Poon, M. |
| Title: | From new deal institutions to capital markets: commercial consumer risk scores and the making of subprime mortgage finance |
| Journal: | Accounting, Organizations and Society
2009 : JUL, VOL. 34:5 p. 654-674 |
| Index terms: | capital markets risk measurement mortgages risk management investment banks |
| Freeterms: | subprime crisis |
| Language: | eng |
| Abstract: | New Deal institutions called government sponsored enterprises (herafter as: GSEs) have traditionally sustained the investment fueled US mortgage market. The GSEs, known as Freddie Mac and Fannie Mae, once dominated mortgage backed securities underwriting. The recent subprime mortgage crisis drew attention to the fact that during the real estate boom, these agencies were temporarily overtaken by risk tolerant channels of lending, securitization, and investment, driven by investment banks and private capital players. The paper demonstrates that what might look like the spontaneous rise of a 'free' market divested of direct government intervention has been thoroughly embedded in the concerted movement of calculative risk management technologies. In the mid-1990's, the transformations began with a sequence of GSE decisions to implement a consumer risk score (a FICO) into automated underwriting systems. This scoring tool was gradually hardwired throughout the industry to become a distributed and collective 'market device'. The paper will show that once modified by specific GSE interpretations the calculative properties generated by these credit bureau scores reconfigured mortgage finance into two parts: the conventional, risk-adverse, GSE conforming 'prime' and an infrastructurally distinct, risk-avaricious, investment grade 'subprime'. |
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