Investment Banks / Brokers
First of all, we have to talk about the system and the structure that were and still are behind the sale of asset-backed commercial paper. Investment banks as well as brokers are responsible for the distribution of these issued bonds or commercial papers. They are those who offer to the special purpose vehicles the platform to distribute their instruments. The first issue is the complexity of this network that arose with the ‘globalization’ of ABCP sales. One key reason for this globalization was the need for a bigger and bigger distribution network due to the enormous development of ABCP before the crisis. During the first steps of ABCP, the market grew up without the need for sellers to watch out for investors. After the development of more complex financial assets that could be packed into an ABCP, this market had become so attractive for lenders that their domestic market could not be the limit. Investment banks were responsible to find a bigger network so that one could exploit the huge potential of extending the ABCP business into the whole world. Soon, millions of transactions of ABCP were executed. But as globalization led to a phenomenal complexity, so has also the investor basis. The usual customers, often institutional investors, were not enough to satisfy their seeking for capital. Investment banks began to sell to retail clients with no capacity of evaluating. This introduces a main issue, which is the sense of responsibility. Of course one could say that the pressure of selling was hanging over the investment banks as an invisible hand that guided and even forced them into the steps they made, but it was still their decision to build op a distribution network that was one of the main reasons for the ABCP crisis. They fai ...