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Accidental Suicide Pacts And Creditor Collective Action Problems: The Mortgage Mess, The Deadweight Loss, And How To Get The Value Back, Robert C. Hockett

Cornell Law Faculty Publications

Sustained economic recovery will remain elusive in America, post-crash, until principal is reduced on some 10-13 million underwater home mortgage loans across the nation. Yet in the case of privately securitized loans, these write-downs are all but impossible to carry out on the requisite scale because bubble-era securitization contracts, which now effectively function as suicide pacts among bondholders, would require collective action by millions of geographically dispersed passive investors in order to authorize write-downs or sales out of securitization trusts. The solution, this article suggests, is for state and municipal governments to use their eminent domain powers to buy up …