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As I understand it, the problem wasn't with documentation at the originating bank.  It was that there was never a proper record made of conveyance of the note from the originating bank to the "trust" used in securitizing the mortgages.

I could be wrong.  But, if you have a limited number of banks that are swapping these notes around as part of deals, going in and merging them into a single, federal bank, (Bank of the United States, anyone?) means that the issue of balancing accounts between them largely goes away.

The government eats the overall loss, but because the derivative deals are wiped out, the size of this loss is much smaller.

It's been the damned derivatives that have made this so difficult. The answer, I think, is to go through and unwind the majority of these deals. A nationalization would allow information to flow freely.  I assume that, at least in part, the "stress test" is about getting a grip on how badly interwined these things are.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 2nd, 2009 at 01:21:30 PM EST
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