Bal Falcone’s securitization proposal and its possible implications

Senatorial candidate Baldomero Falcone said during the Harapan 2013 Senatorial Debat that he will “ teach securitization to all [local governmeent officials]…so that we’ll have an economic reconnaissance all over the countryside”.

While securitization is neatly defined by Investopedia.com as “[t]he process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors”, its definition is still being debated (for instance, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1996017 and http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3127&context=faculty_scholarship) due to the inherent complexity of the securitization process.

Falcone mentioned that it was what MetroPacific Investments Corporation did in its successful bid to acquire Fort Bonifacio. However, the same securitization of mortgage loans, especially the subprime ones, was the root of the US financial crisis in 2008 when subprime mortgagors defaulted with the increase in interest rates. (See Harvard University’s Financial Crisis 101)

Given the complexity of securitization and the dangers it posed if left unregulated, Falcone did not mention the equally crucial regulatory aspect of securitization, considering the track record of the Philippine’s Security and Exchange Commission. For instance, Legacy Consolidated Plans and College Assurance Plans were under SEC regulation when they went into trouble.

He also did not look on the possible fiscal implication of local governments securitizing their Internal Revenue Allotments (IRA). While securitization might enable local governments to get the present value of future IRA flows, the same scheme could give last term administrations a windfall to the detriment of their successors; an invitation to irresponsible spending that needs effective regulation.


This fact check was conducted by UP Diliman Political Science Assistant Professor Nelson Cainghog.