What Makes Asset Securitization "Inefficient"?


Despite the damage caused by the recent Enron scandal , the asset securitization market has been vibrant and has become a popular financing alternative . A number of academics emphasize its merits and suggest that it is a more favorable way of financing, and Congress’s proposal to make sales of asset in securitization immune from characterization as secured transactions under the Bankruptcy Reform Act of 2001 (the “Reform Act”) almost materialized when the Enron scandal hit the scene. Conversely, there have been accusations that securitization is not a legitimate way of financing because, for example, it fosters fraudulent transactions.

Why are there such divergent views? This divergence may derive from the all-encompassing definition of “securitization.” Securitization transactions, while possessing certain common characteristics, cover a wide variety of asset classes and structures , and confusion arises when addressing the subject without attention to nuances. This paper attempts to show that securitization is not necessarily “efficient” when the originator becomes financially distressed and the securitized asset was a type of asset the unsecured creditors do not expect to be subject to securitization.


Accounting Law | Banking and Finance Law | Bankruptcy Law | Business Organizations Law | Commercial Law | Economics | International Trade Law | Internet Law | Law | Law and Economics | Secured Transactions | Securities Law

Date of this Version

May 2005