Collateralized Explosive Devices: Why Securities Regulation Failed to Prevent the CDO Meltdown, and How to Fix It

In 2007 and 2008, financial markets around the world exploded. In this Article, the author analyzes this meltdown and discusses proposals for preventing similar crises. First, the author investigates the failure of the credit rating agencies to deal with collateralized debt obliga-tions (CDOs). Second, the author explores the current economic crisis by looking to past finan-cial downturns and the failure of regulations to achieve sufficient transparency. Third, the author discusses proposals to remedy the crisis. Fourth, the author proposes his own solution, which would subject CDOs to stricter requirements under the aegis of securities regulation. This proposal includes (i) an extension of antifraud provisions of the securities laws to CDOs, (ii) increased regulation of and mandated standards for the rating agencies, and (iii) an assignment of rights and liabilities to the rating agencies in order to effectively enforce the new regulations. Finally, the author looks to the future and proposes that the government require extensive disclosure for new types of securities.

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