The state as a market maker: The rise (and fall) of Brazilian securitization in the 21st century

Abstract

This paper analyses housing securitization in Brazil during 2007–2020 and provides three contributions to debates on the relations between the state and financialization in emerging markets. First, we highlight that the Brazilian state has gone far beyond the common role of market enabling, characterized by regulatory rollout and fiscal incentives. Instead, by acting as a market maker on the demand and supply side, it has provided the required liquidity and depth for the emerging segment of residential securitization. Unlike the financial disintermediation through private market makers such as brokerage houses and individual traders that provide risk-reduction, Brazilian securitization has unfolded through the issuance and acquisition of securities by the state’s housing bank and its associated social housing fund. Second, unlike the speculative Minsky type of booms and busts that characterize privately-driven markets, state market making generates a trajectory that is associated with the capacity of governments to roll-out markets for residential securitization. While the social-developmental stance of the Lula and Dilma administrations have boosted securitization, the market-oriented austerity politics of the Temer and Bolsonaro administrations have quickly dried up secondary markets. Finally, while securitization was initially a means to the end of social housing, it seems increasingly the other way around. More specifically, considering that thick and consolidated secondary markets ultimately depend on the quality and stability of the underlying loans and income streams that originate operations, stricter risk reduction and guarantees clauses have gradually penetrated the social housing segment and threaten to undermine the right to secure tenure.