Elements of Structured Finance

Elements of Structured Finance

Elements of Structured Finance

Elements of Structured Finance

Synopsis

This is the first book to cover structured finance systematically in a textbook designed for both professionals and students, even though the practice is overtwenty years old and has become a ubiquitous element of modernfinancial management.

Excerpt

The ability to finance a corporation off-balance-sheet through issuing structured securities starts, not with finance, but with the law. For this reason alone, a chapter on legal analysis should occupy first position in a book on the elements of structured finance. But a second reason for putting the legal chapter first is that, unlike the economics analysis underlying off-balance-sheet finance, which is internally consistent because it is mathematical, the legal theory of off-balance-sheet finance has yet to be formalized. The law is piecemeal, relatively unexamined and disconnected from the economics. Moreover, within U.S. securitization law at least, glaring lacunae have been present from the beginning. Their persistence has enabled certain powerful market institutions to circumvent the self-imposed rules and principles of risk transfer, at first selectively and invisibly, and later on a scale that has put the market itself in jeopardy. That is not to say that all the recent problems in the structured finance market are due only to legal breaches, but certainly they have been due to a breakdown in market ethics, of which legal breaches have been part and parcel from the beginning. Some, but not all of the problems with securitization law are unintended. Since the practice norms of securitization law evolved by and large as a synthesis of existing laws, without the benefit of economic insight, most legal practitioners failed to grasp the economic meaning of structures they were allowing to go to market. However, some leading legal practitioners, collectively and individually, have also exploited the general ignorance, by watering down or perverting customary structuring rules for the benefit of clients and constituents. If securitization law is to become fair, the invisible game-playing going on must come to light, the gap in perspectives between the law and economics must be narrowed and awareness about the violations of practice norms must develop. This is why we, as nonlawyers, wound up writing a chapter on legal analysis, albeit from an economic standpoint, and placed it at the start of this book.

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.