

Redesigning global finance  - siavashsimin
http://www.economist.com/opinion/displaystory.cfm?story_id=12599261

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crabapple
it is simple to fix global finance with one simple rule going forward:

IF YOU SOURCE A LOAN, YOU SERVICE IT

by that i mean there is no reselling debt. when a lender resells debt (aka
"securitization"), they have no real incentive to make sure the borrower can
repay the debt...repayment becomes someone else's problem. the only incentive
is to make as many loans as you can sell. so this is why you have mortgage
brokers finding "innovative" ways to get $800k loans to people who pick
lettuce for $30k a year...or put a thousand such crappy loans on a big back,
call it a "SIV" and convince a pension fund that crap*1000 is safer than crap.

admittedly dropping securitization would put some fetters in the flow of
global capital, but that would be the price of safety. it would really just be
an issue of turning back the clock to the days when the banker who made you a
loan to buy your house was the same one you mailed the check to each month

