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7 N.Y.U. J.L. & Bus. 811 (2010-2011)
Complexity and Its Discontents: Recurring Legal Concerns with Structured Products

handle is hein.journals/nyujolbu7 and id is 815 raw text is: COMPLEXITY AND ITS DISCONTENTS: RECURRING LEGAL CONCERNS WITH STRUCTURED PRODUCTS MICHAEL BENNET* I. INTRODUCTION ............................... 811 II. BACKGROUND: WHAT ARE STRUCTURED PRODUCTS? .................................. 813 III. INVESTOR SUITABILITY ......................... 815 IV. CONFLICTS OF INTEREST ........................ 827 V. STRUCTURED PRODUCTS FOR REGULATORY ARBITRAGE ................................... 835 VI. CONCLUSION ................................. 843 I. INTRODUCTION The last few years have not been kind to the structured products industry. The global financial crisis that began in 20081 with the implosion of the United States sub-prime mort- gage backed securities market2 threw an often harsh public spotlight on structured products. Ratings downgrades, steep price declines, defaults and disputes involving various struc- tured products, from collateralized debt obligations (CDOs)3 to structured municipal swaps, all have drawn public and regu- * The author is a Lead Financial Officer at the World Bank, and earned aJ.D. from the Columbia University School of Law in 1990. The find- ings, interpretations and conclusions expressed herein are those of the au- thor and do not necessarily reflect the views of the World Bank or its affili- ated organizations. 1. For detailed information about the financial crisis, see Stephen G. Cecchetti, Monetary Policy and the Financial Crisis of 2007-2008, April 2008, http://fmwww.bc.edu/ec-j/sems2008/Cecchetti.pdf (last visited Feb. 9, 2011). 2. For information on the sub-prime mortgage backed securities mar- ket, see Benjamin J. Keys, Tanmoy Mukherjee, Amit Seru & Vikrant Vig, Fi- nancial Regulation and Securitization: Evidence from Subprime Loans, 56J. MONE- TARY EcoN. 700 (2009). 3. A CDO is a type of asset-backed security whose value and payments are derived from a portfolio of underlying debt obligations, usually bonds or loans. CDO's are typically split into different tranches that reflect different levels of risk on the underlying portfolio. See DOUGLAS J. LucAs, LAURIE S. 811 Imaged with Permission of N.Y.U. Journal of Law & Business

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