The problem with securitization is that it dilutes individual responsibility. The mortgage broker can easily become disconnected from the outcome of the initial lending decision. Federal regulation is needed to ensure that mortgage originators perform the appropriate due diligence in matching potential borrowers with loan products. Underwriters should be required to retain an interest in what they issue. Full Story »
Posted by Beth Wellington
Good overview of the MBS mess. Just as the current banking crisis is a re-run of the S&L mess twenty years ago, the MBS mess mirrors the junk bond mess of the same time period. Junk bonds themselves were a great idea. But Mike Milken decided to push the ethical and legal envelope to make them a much better thing, for him. Same goes for MB securities. In responsible hands they provide liquidity to the mortgage markets. In the wrong hands they can throw the entire global financial machinery into chaos.
