Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Dubious legal foundations of modern finance?

I have been reading a 2008 paper by Kenneth C. Kettering (“Securitization and Its Discontents: the Dynamics of Financial Product Development”) arguing that securitization is built on dubious legal foundations – specifically there are possible conflicts with aspects of fraudulent transfer law. Kettering argues that securitization is an example of a financial product that has become so widely used that it cannot be permitted to fail, notwithstanding its dubious legal foundations.

I am not a lawyer (and Kettering’s paper is over 150 pages long) and therefore I am unable to comment on the legal validity of his claims. But, I also recall reading Annelise Riles’s book Collateral Knowledge: Legal Reasoning in the Global Financial Markets (University of Chicago Press, 2011), which makes somewhat similar claims. But her ethnographic study was focused on Japan, and when I read that book, I had assumed that the problems were specific to that country.

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One response to “Dubious legal foundations of modern finance?

  1. tangentstyle July 15, 2013 at 2:00 pm

    Reminds me of an instance in which the state of Texas (in the United States) accidentally banned marriage: http://www.cbsnews.com/8301-503544_162-5700676-503544.html

    Even if it’s true, (as you touched on) it isn’t going to stop, regardless of the legal side of things.

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