In praise of small things: securitization and governance structure

In the aftermath of the 2007–2008 financial crisis, the public is loudly asking for action, lawmakers elected or confirmed on promises of reform are trying to fulfil their pledge by means of ‘macro’ solutions. Leaving aside major reform points for the moment, this article proposes to take a ‘micro’ view, and examine more basic questions about the way securitization transactions (a major element in the crisis) were actually organized, and how investors’ interests were protected. In so doing, it compares the law in countries such as the USA, UK, Spain, France, Italy, Luxembourg or Portugal. The article reaches the striking conclusion that deals that were very complex and sophisticated, lacked effective internal self-enforcing mechanisms, which, in the view of the asymmetry of information between sponsors/underwriters and investors, were necessary. As such, by making some proposals for reform, it tries to open a debate on the need to revitalize securitization markets by changing the way transactions work from the inside-out.