When Financial Innovation Backfires: The Failures of the Last Hundred Years

Several thousand local authorities (municipalities, regions, departments) and public establishments (hospitals, social housing offices), mainly in France, have taken out structured loans. Appearing in the 1990s, these loans, which are much riskier than a conventional mortgage, were very popular in France in the early 2000s. They responded to a strong need of local authorities to find resources to fulfill the expanded missions entrusted to them by the State in the 1982 law on decentralization.

The consequences of the 2008 financial crisis, falling interest rates and high volatility in indices and currencies have completely changed the situation for borrowers. Certain contract clauses, which the latter had either eluded, or misunderstood, or imagined that they would not be fulfilled, transform the deadlines into a burden impossible to repay. A look back at one of the great chronicles of the 2010s, at the heart of which the bankruptcy of the Franco-Belgian bank Dexia occupies a prominent place.