Lewis "Lew" Ranieri (b. 1947) is a former bond trader and former vice-chair of Salomon Brothers who is credited with popularizing the concept of securitization in the financial world. Ranieri's securitization revolution allowed all sorts of cash flows from debts (such as credit cards, mortgages, etc.) to be pooled and rolled into bonds.
- Lewis Ranieri was a successful bond trader and then executive of the global investment bank Salomon Brothers in the 1970s and 1980s.
- During his tenure, Ranieri popularized and developed various financial products based on the securitization of cash flows and debt obligations.
- Ranieri helped to create collateralized mortgage obligation (CMO), a complex repackaging of debt.
- Securitization involves pooling cash flows from similar instruments and bundling them into single bond-like securities that can be sold to investors.
- The Big Short, written by journalist Michael Lewis, was made into a movie, made Lewis Ranieri's name familiar in the public eye beyond the world of finance.
Early Life and Education
Lewis S. Ranieri was born in Brooklyn, NY, in 1947, where he attended St. Rita’s Elementary School.
According to reports in the media, he wanted to be a chef in Italian restaurants, but asthma prevented him from working in kitchens where smoke was an issue. A practicing Catholic, he started college at St. John's University, dropped out but later returned and got his bachelor's degree, and was awarded an honorary Doctor of Laws degree.
A practicing Catholic, Ranieri credits his Catholic education with assisting him in making decisions in life and business.
Honors and Awards
In 2004, Business Week magazine named Ranieri one of "the greatest innovators of the past 75 years," A year later, he received the Distinguished Industry Service Award from the American Securitization Forum. He was inducted into the National Housing Hall of Fame and received the Lifetime Achievement Award from the Fixed Income Analysts Society, Inc. (FIASI).
Because cash flows come in from various loans or borrowers, any single default should not matter in the overall pooled portfolio, thus reducing risk. The 2008 financial crisis, however, showed this to be a fallacy.
In 1977, savings and loans banks were feeling the financial difficulties involved with funding short-term, higher-interest demand deposits with longer-term, low-interest mortgages. As a result, banks did not want to hold too many mortgages. This limited mortgage issuance and suppressed the housing market. Ranieri devised a novel solution where he created five- and 10-year bonds from 30-year mortgages. These new mortgage-backed securities (MBS) helped Ranieri attract a larger crowd of investors, taking the mortgages off the banks' books and allowing them to issue new mortgages as the existing ones were sliced up and sold off.
Ranieri wasn't the sole mind behind the creation of the mortgage-backed security, but he was the greatest champion in ensuring that the new investment prospered. In addition to the MBS, Ranieri played a role in creating the collateralized mortgage obligation (CMO), another complex repackaging of debt.
However, once articulated, the practice of securitization spread like wildfire through the financial world. To this day, securitization plays a critical role in everything from credit card debt to the national debts of developing nations. Ranieri left Salomon Brothers to found Hyperion Partners before founding his current venture, Ranieri Partners, as an advisor and manager of private investments.
Initially, MBSs were only acknowledged by a handful of states as legitimate investments, but Ranieri's actions eventually led to federal government measures that supported these securities as a valid investment asset class, leading to the development of the bond market. For this reason, Ranieri is seen as the father of securitization.
Ranieri was well known in financial circles for his primary innovation of securitization and his lobbying efforts that saw the MBS become a critical financial instrument for the real estate market. However, he was not publicly well known until the movie The Big Short (based on the Michael Lewis book by the same name; no relation) highlighted his financial innovation and its role in the mortgage meltdown.
Ranieri reflected the blame for his role in the crisis back upon Wall Street and the lenders for abusing the system of securitization to create subprime loans and teaser rates that almost guaranteed a homeowner would default long term. Time magazine named him one of "25 people to blame for the financial crisis" of 2007-2008.
However, in a Wall Street Journal interview in 2018, Ranieri expressed regret over how his creation of packaging mortgages into securities impacted Americans losing their homes during the subprime lending crisis during the Great Recession.
Why Is Lewis Ranieri Famous?
Lewis Ranieri is credited with popularizing the concept of securitization in the world of finance.
Is "The Big Short" About Lewis Ranieri?
The Big Short is a nonfiction book by Michael Lewis and an Oscar-winning film directed by Adam McKay. The character Lewis Ranieri shows up in the first part of the movie, but he is not one of the main characters.
Who Is the Father of Mortgage-Backed Bonds?
Lewis Ranieri is credited with being the father of mortgage-backed securities, which played a big role in the Great Recession.