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Full-Text Articles in Law
The Intersection Of Nfts And Structured Finance, Christopher K. Odinet, Andrea Tosato
The Intersection Of Nfts And Structured Finance, Christopher K. Odinet, Andrea Tosato
Faculty Scholarship
Blockchain technology, cryptocurrencies, stablecoins and non-fungible tokens (NFTs) continue to invade financial markets. Whether through partnerships between financial institutions and tech firms or through in-house initiatives at some of the nation’s largest banks, blockchain-based products, services, and transactional structures are a major point of interest. In a recent work by Professor Steven Schwarcz, the growing NFT market is analyzed using the traditional tools of structured finance. Creating a new conceptual model called non-cash-flow monetizations, Professor Schwarcz reveals the risks to investors and markets, if the tokenization of non-traditional and largely illiquid assets proliferates. Having identified the potential harms, he offers …
Securitizing Notes Of Small Businesses And Needy Workers, Tamar Frankel
Securitizing Notes Of Small Businesses And Needy Workers, Tamar Frankel
Faculty Scholarship
Businesses, whether large ones or small ones, such as restaurants and small shops, are presently closed and some of their employees have been laid off.1 Currently, the government is lending money to these small businesses2 and the now unemployed workers for their sustenance. It then collects the payments from some of the borrowers and the source of the rest of the money is taxes.3 Since not all, or perhaps only a few, small businesses own real estate, they might sign notes promising to repay the loans but can offer no asset backing. Presumably, the nation’s financial deficit …
Securitizing Digital Debts, Christopher K. Odinet
Securitizing Digital Debts, Christopher K. Odinet
Faculty Scholarship
The promise of financial technology (“fintech”) and artificial intelligence (“AI”) in broadening access to financial products and services continues to capture the imagination of policymakers, Wall Street, and the public. This has been particularly true in the realm of fintech credit where platform companies increasingly provide online loans to consumers, students, and small businesses by harnessing AI underwriting and alternative data. In 2019 alone fintech lenders represented nearly 50% of total non-credit card, unsecured consumer loan balances in the United States. One of the most prevalent ways fintech credit firms operate is by securitizing the online loans they help originate. …
The New Mechanisms Of Market Inefficiency, Kathryn Judge
The New Mechanisms Of Market Inefficiency, Kathryn Judge
Faculty Scholarship
Mechanisms of market inefficiency are some of the most important and least understood institutions in financial markets today. A growing body of empirical work reveals a strong and persistent demand for “safe assets,” financial instruments that are sufficiently low risk and opaque that holders readily accept them at face value. The production of such assets, and the willingness of holders to treat them as information insensitive, depends on the existence of mechanisms that promote faith in the value of the underlying assets while simultaneously discouraging information production specific to the value of those assets. Such mechanisms include private arrangements, like …
The Unfinished Business Of Dodd-Frank: Reforming The Mortgage Contract, Christopher K. Odinet
The Unfinished Business Of Dodd-Frank: Reforming The Mortgage Contract, Christopher K. Odinet
Faculty Scholarship
The standard residential mortgage contract is due for a reappraisal. The goals of Dodd-Frank and the CFPB are geared toward creating better stability in the residential mortgage market, in part, by mandating more robust underwriting. This is achieved chiefly through the ability-to-repay rules and the “qualified mortgage” safe harbor, which call for very conservative underwriting criteria to be applied to new mortgage loans. And lenders are whole-heartedly embracing these criteria in their loan originations — in the fourth quarter of 2015 over 98% of all new residential loans were qualified mortgages, thus resulting in a new wave of credit-worthy homeowners …
Fragmentation Nodes: A Study In Financial Innovation, Complexity, And Systemic Risk, Kathryn Judge
Fragmentation Nodes: A Study In Financial Innovation, Complexity, And Systemic Risk, Kathryn Judge
Faculty Scholarship
This Article resents a case study in how complexity arising from the evolution and proliferation of a financial innovation can increase systemic risk. The subject of the case study is the securitization of home loans, an innovation which played a critical and still not fully understood role in the 2007-2009 financial crisis. The Article introduces the term "fragmentation node" for these transaction structures, and it shows how specific sources of complexity inherent in fragmentation nodes limited transparency and flexibility in ways that undermined the stability of the financial system. In addition to shedding new light on the processes through which …
The Problems Of Securitizing Sub-Prime Loans, Tamar Frankel
The Problems Of Securitizing Sub-Prime Loans, Tamar Frankel
Faculty Scholarship
In October 2007, the board of directors of Merrill-Lynch, Smith & Fenner, one of the largest if not the largest brokerage houses in the United States, accepted the request for early retirement of its Chief Executive Officer. The brokerage firm disclosed that it has lost over $8 billion on its investments in sub-prime mortgage loans.1 Merrill Lynch was not the only financial giant to sustain enormous losses. The losses caused market liquidity to dry up. The U.S. government took steps to ease the pressure.2 But the high leverage of the system is still unravelling. The effect of these …
Securitizing Insurance Risks, Tamar Frankel, Joseph W. Laplume
Securitizing Insurance Risks, Tamar Frankel, Joseph W. Laplume
Faculty Scholarship
This Article analyzes and evaluates the legal problems that have arisen in connection with this rapidly developing insurance risk securitization. The first part of the Article deals with legal issues concerning the SPVs that undertake insurance and reinsurance contracts with ceding insurers and the other parties to the transaction. The Article addresses the dilemma in choosing the laws applicable to SPVs, the bonds they issue, and the persons and entities that form part of the securitization transaction. These laws involve state insurance laws, bankruptcy and tax laws, the Investment Company Act of 1940 and the Commodity Exchange Act of 1934, …
Securitization: The Conflict Between Personal And Market Law (Contract And Property), Tamar Frankel
Securitization: The Conflict Between Personal And Market Law (Contract And Property), Tamar Frankel
Faculty Scholarship
The road to securitization - transforming debt and loans into securities - is littered with obstacles. These obstacles seem unrelated. Yet, upon reflection, many legal and business problems arising in the securitization process can be traced to one source: the inherent conflict between contract law governing personal relations among creditors and debtors, and property law governing the same relations converted into "commodities" issued or traded in the market among investors. Identical terms can be characterized as contract loans in personal context, and as personal property (securities or bonds) in market context.