Perhaps the most revolutionary change in the financial markets is the increasing trend towards “disintermediation.”1 Disintermediation is the elimination of intermediaries in the supply chain. This is commonly referred to as “cutting out the middlemen.” In the financial markets disintermediation is characterized by a weakening in the relationship between banks and their customers and a concomitant increase in direct relationships between the ultimate suppliers and users of financing. Rather than taking a permanent position as secured or unsecured lenders, financial institutions are increasingly acting as facilitators or conduits of financing transactions. Asset securitization, the increase of money market funds for investment of cash reserves, the growth of communications networks such as the internet, and the implementation of strict bank capital requirements have all contributed to this trend.2 Asset securitization is a species of disintermediation inasmuch as it permits a company to acquire reduced-cost financing through the removal of intermediaries such as bank lenders, which previously stood between a company and the ultimate source of money, the financial markets. Through asset securitization, a company avoids the increased transaction costs charged by middlemen financial institutions. It also enables a company to raise funds cheaply based on allocation of risks that are assessed by parties having the most expertise, such as rating agencies.
* Kenneth N. Klee is an Acting Professor of Law at UCLA School of Law and a Founding Member of Klee, Tuchin Bogdanoff & Stern LLP. Brendt C. Butler is an attorney with Klee, Tuchin, Bogdanoff & Stern LLP. 1
This article relies on and abstracts from, among others, the following legal scholarship: Jonathan C. Lipson, Enron, Asset Securitization and Bankruptcy Reform: Dead or Dormant?, 11 J. Bankr. L. & Prac. 1 (2002) (hereafter “Enron, Asset Securitization and Bankruptcy Reform”) Harold S. Novikoff, Bankruptcy Remote Vehicles and Bankruptcy Waivers, SG001 ALI-ABA 97 (2001) (materials used by permission) (hereafter “Bankruptcy Remote Vehicles”); Peter J. Lahny IV, Asset Securitization: A Discussion of the Traditional Bankrupt Attacks and an Analysis of the Next Potential Attack, Substantive Consolidation, 9 Am. Bankr. Inst. L. Rev. 815 (2001) (hereafter “Traditional Bankruptcy Attacks”); Lois R. Lupica, Revised Article 9, Securitization Transactions and the Bankruptcy Dynamic, 9 Am. Bankr. Inst. L. Rev. 287 (2001) (hereafter “Bankruptcy Dynamic”); Report by the Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, New Developments in Structured Finance, 56 Bus. Law 95 (2000) (hereafter “New Developments”); Lois R. Lupica, Circumvention of the Bankruptcy Process: The Statutory Institutionalization of Securitization, 33 Conn. L. Rev. 199 (2000) (hereafter “Circumvention of the Bankruptcy Process”); Lois R. Lupica, Asset Securitization: The Unsecured Creditors Perspective, 76 Tex. L. Rev. 595 (1998) (hereafter “Unsecured Creditors Perspective”); The Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, Structured Financing Techniques, 50 Bus. Law 527 (1995) (hereafter “Structured Financing Techniques”); Steven L. Schwarcz, The Alchemy of Asset Securitization, 1 Stan. J. L. Bus. & Fin. 133 (1994) (hereafter “Alchemy of Asset Securitization”); Stephen I. Glover, Structured Finance Goes Chapter 11: Asset Securitization by the Reorganizing Companies, 47 Bus. Law 611, 627 (1992) (hereafter “Structured Finance Goes Chapter 11”); Steven L. Schwarcz, Structured Finance: The New Way to Securitize Assets, 11 Cardozo L. Rev. 607 (1990) (hereafter “Structured Finance”)
See generally Donald C. Langevoort, Angels on the Internet: The Elusive Promise of “Technological Disintermediation” for Unregistered Offerings of Securities, 2 J. Small & Emerging Bus. L. 1 (1998).
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