Here's a rather clear synopsis of what went wrong with securitization that led to the financial crisis of the past year.
The authors make an excellent point: for all of the money and bluster expended, all of the government's actions thus far have failed to target precisely the toxic assets that actually lie deep at the root of the crisis.
The authors conclude with a two-step proposed solution. They say mandatory government-enforced disclosure should follow an attempt by some unnamed force to get the issuers of various asset backed securities to voluntarily disclose the precise nature of their complex securities in uniform fashion in a common database.
While this approach makes some sense as far as finally addressing the true bones stuck in the craw of the system, I question whether the second step of government mandating disclosure should ever really be necessary.
If the securities involved were so complex and almost entirely subprime after a certain number of slices and dices, the problem lies with rating agencies that continued to put a AAA rating on pieces of excrement swaddled in cheery wrapping paper and done up with a bow. And beyond that, the problem lies with investors who took the ratings as gospel. If some of the mechanisms involved were not private, well, some parties took risks and they should take their lumps accordingly.
If toxic assets are still lurking somewhere in bank books (and they are), investors should demand transparency internally between themselves and the entity with the threat of moving money elsewhere if the entity fails to do so. If a financial institution is unable to ascertain the nature of the toxic assets on its books because it cannot determine the actual assets underlying its securities, then it failed somewhere along the line by giving in to the hubris of the market heyday. If so, it should reap now what it sowed.
That's admittedly a bit of an oversimplification, but it is actually a better general outline for how to view the situation - as opposed to one where it appears everyone involved who took risks is somehow owed something.
I see why the government feels it must increase regulation at this time. But what has the government's involvement in trying to save the financial system from itself wrought? Well, as one observer argues...
At the same time, American taxpayers are on the hook for what may well amount to the astronomical sum of $23.7 trillion to fix the financial system.