In doing this, they are essentially permanently outsourcing their principal business, which is the implicit (and sometimes explicit, in the world of trade finance) guarantee of the credit of borrowers.

Banks also offload the guarantee temporarily (credit derivatives) or partially (eg AMBAC and the other monoline credit insurers).

The solution I advocate is putting the assets into trust and dividing the guarantee payments from borrowers (because the guarantee is the true value their interest payments is exchanged for) between investors and managers through the creation and sale of proportional units of this revenue stream.

This partnership-based "unitisation" is of course selling on the cash flows as you suggest.

Because as Canadian financial markets show, you don't actually need to sell ownership and control when you can parcel up the revenues (into Income Trusts in that case) and sell off the units.

This "unitisation" is an emerging "asset-based" alternative to the "securisation" now pretty much frozen solid.


"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky