03 Dec “Skin in the Game” Can’t Replace Facts

A common diagnosis of the housing debacle is that lenders lacked “skin in the game,” and so made loans without regard to risk. A proposed overhaul of financial regulation being debated in Congress would require securitizers of mortgages to keep, at minimum, between 5% and 10% interest in the pools. The bigger question is whether mandating skin in the game would make any difference in preventing another bubble. “We’re asking people to pay money instead of telling the truth,” said Ann Rutledge, a principal at R&R Consulting, a structured finance advisory firm in New York.
Read the full article in American Banker (subscription required for access): Kate Berry, “Mandating ‘Skin in the Game’ is Reinventing the Wheel,” November 30, 2009.