NYT Features Prof. William Goetzmann’s Research into the History of Real Estate Securitization

The collapse of the real estate securities market that underpinned the current financial crisis is widely viewed as a recent phenomenon born from the financial innovation of the past few decades. But new research by William N. Goetzmann, Edwin J. Beinecke Professor of Finance and Management Studies and Director of SOM’s International Center for Finance, and Frank Newman, a former student in Goetzmann’s History of Finance and Capital Markets course, shows that the U.S. experienced an earlier and equally toxic wave of real estate securitization in the 1920s. In their National Bureau of Economic Research working paper, "Securitization in the 1920s," which was featured in the New York Times, Goetzmann and Newman collected real estate securities issuance and pricing data from the beginning of the twentieth century using documents preserved in the Yale History of Finance Collection to explore the size, scope, and risks of the public real estate securities market of the time. Their work brings historical perspective to today’s markets.

"The present crisis is not the first time that the real estate market had expanded to the brink of collapse," write Goetzmann and Newman. "The U.S. real estate securities market was remarkably complex through the first decades of the twentieth century. Many parallels with the modern market can be observed. The early real estate development industry fed the first retail appetite for real securities. Consequently, easily obtainable financing via public capital markets corresponded with an urban construction boom. Through the entire movement, regulation and centralization were glaringly absent. An exchange dedicated exclusively to real estate securities was created and quickly failed. Ultimately, the size, scope and complexity of the 1920s real estate market undermined its merits, causing a crash not unlike the one underpinning our current financial crisis."

Read the working paper "Securitization in the 1920s."