Question/Comment: As it is with all financial crisis, I guess, a lot of the damage stems from uncertainty. No one knows how much bad debt is out there and who’s holding it. My question is: why is it not possible to have some sort of central registry of mortgage lending (plus securitization of same), so that lenders and regulators could easily see the aggregate amount of sub-prime debt and by whom it is held? Or does such a registry exist?
Paul Solman: Not that I’m aware of. A lot of the discussion about the sub-prime crisis revolves around renewed regulation. Our piece of several months ago tried to provide a full explanation. The relevant excerpt, including an exchange with the esteemed real estate expert, Wellesley economist Karl Case:
Me (in as narrator): In the era of securitization, with investors holding loans instead of banks, much of the mortgage market has been, in effect, deregulated, not a bank examiner in sight, because so many mortgages were now held not by banks but by investors via Wall Street.
KARL CASE: Deregulation happened without anybody doing it, because a lot of this stuff moved into an unregulated sector.
PAUL SOLMAN: What do you mean?
KARL CASE: Well, banks are highly regulated. And there are strict standards on the kind of paper they can hold. But if a Wall Street firm goes out and buys mortgages, those are private transactions that aren’t tightly regulated.
PAUL SOLMAN: And when Wall Street securitized, repackaging the mortgages and selling them to investors the world over, that was unregulated, too. So what’s new is the global, unregulated market for U.S. mortgages, made feasible by securitization. [END OF EXCERPT]
There is now talk of new regulation. Transparency is always a goal in such cases.