Over time, the concept of "securitisation" became established. What is securitisation? Essentially, it treats future "repayments" (see figure 1), or rather the loan that creates this future stream of cash-flow, as a kind of asset. By aggregating a number of these loans into one large package, the overall worth of future repayments is reasonably secure, and the bank can then sell on the package as an asset. It is in the interest of banks to do this, because it passes on some of the risk of an individual not repaying a loan. It is in the interest of investors to do this, because they can make a profit on it (so long as risk is assessed, or priced, correctly). Incidentally, one of Bluefin's customers - a Financial Services company - has an "Asset-Backed Securitisation" model run in SAP NetWeaver, which Bluefin helped to develop and support.

The advent of securitisation meant that suddenly the business of lending money became far more complex (see figure 2), with many institutions potentially taking on different aspects of the risk involved in the original loan.

Figure 2 - Securitisation - Complicated lending that spreads the risk

One impact of this development was the changing role of the banks. They went from being organisations which loaned out their money to people they personally knew, to being the "originators" of loans that were very quickly passed on to other institutions (Special Purpose Vehicles, or SPVs, and downstream investors). Suddenly those bearing the risk were potentially very far removed from those who presented the risk.

This is the still pond (albeit with hidden depths) into which the stone of the Subprime Mortgage Crisis was thrown, with a ripple effect which is still spreading far and wide.