Delegation: Oriental Republic of Uruguay

Committee: Economic and Financial Committee

Topic Area: Banking Policies for Avoiding Global Recessions

Ever since the decade of 1980, societies in western hemisphere

countries have had been submerged in an era of deregulation and faith
in the markets. (Sandel, 2013, p. 6) This ended after the U.S. real estate
market crashed in 2008, causing a financial tsunami of global
proportions. Such financial crash was only possible for two main
reasons: 1) the securitization of poorly supported home mortgages and
2) the financial markets of the world becoming increasingly intertwined
and interdependent on one another. Securitization can be defined as
the packaging of individual loans or other debt instruments –such as
mortgages—so that the resulting “package” can be enhanced in its
credit rating to further their sale to third party investors. (Kendall, L. &
Fishman, M., 1996, p. 15). Specifically, in mid-2007, there was a sharp
increase in default rates on low income housing mortgages in the US
(Reinhart, C. & Rogoff, K, 2011, p. 208), which meant that the values of
the securities on which such mortgages were supported began
decreasing in value. That wouldn’t have been anything out of the
ordinary, if it were not for two issues: 1) the credit agencies didn’t
devalue the credit rating of those securities whose value was
decreasing and—most importantly—2) the amount of debt which was
based on those securities and the number of financial institutions who
were owners of that debt was enormous. Indeed, the financial sector
was the equivalent to 8 percent of the GDP of the U.S. (p. 210)
Although the case presented in this paragraph is only one of many
examples financial crisis throughout history, it is the most recent and
serious, not only because of its magnitude, but because of the risk it
posed on the world economic stability.

The Oriental Republic of Uruguay was itself hit by a banking crisis in

the year 2002.

References
Kendall, L. & Fishman, M. (Eds.). (1996). A Premier on Securitization.
(Third Printing) Cambridge, MA: MIT Press

Sandel, M. (2013). What Money Can’t Buy: The Moral Limits of

Markets. (Reprint). New York, NY: Farrar, Straus and Giroux

Reinhart, C. & Rogoff, K. (2011). This Time is Different: Eight Centuries

of Financial Folly. (1st Edition, Reprint) Princeton, NJ: Princeton
University Press