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So, I am really wishy-washy about what I think of securitization. In many respects, I appreciate that it allocates risk to those most able to bear it, it seems to expand the amount of liquidity in certain markets, and used properly can be an effective way for firms to raise money without relinquishing certain rights or types of control. But here is one lump you can add to the scale that might encourage me to support an outright ban on securitization (it’s not like that could ever happen in practice, can you imagine what products might arise in its place?):

Unions typically outspend their political rivals by astonishing amounts – as much as 20 to 1 in certain citizen initiative campaigns. It turns out that one reform the unions really do not like are initiatives to allow union members withhold dues that are being used to sponsor political campaigns. But even if unions are not able to tap funds from current members, they have been aided by Wall Street in the securitization markets as well. They are now able to borrow millions of dollars in the market by securitizing future union dues streams. Given that much of union spending on politics in my view increases state and local spending, and does little to actually help the consumers and students that they supposedly serve, I view this as undesirable. And who the heck would buy securities backed by future union dues, especially if those dues were coming from private sector unions?

One Response to “Here is Strict Regulation I’d Favor!”

  1. Harry says:

    Indeed, who buys those bonds and at what yield? It would be ironic if some public employees’ pension fund owned some public union’s bonds that would default. But then the taxpayers would be on the hook for paying defined benefits. But that’s your point.

    I am wondering: has Moody’s or S+P ever rated union-dues revenue bonds? When you get back, could you ask?

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