ECON 411
Problem Set 3
Oct. 22nd, 2020
1 Short-answer Questions
1. [Q.3 in Chapter 8] Securitization has spread from mortgages to student loans and credit card
debt. However, few loans to businesses have been securitized. Explain why.
Very few loans to businesses have been securitized, because securitization
relies on the pooling of loans that share similar characteristics (such as credit
scores for mortgage loans). Pooling allows savers to evaluate the risk for
default of securities that grant them a share of the payments on the loan pool.
Because it is more difficult to find such similar characteristics for businesses
than for households, it is harder for savers to evaluate the default risk of
