Securitization Regulation

I am a little disappointed in the news of new regulations for securitization markets. This article from Dow Jones details the plan that the government will require the firms that securitize debt to hold onto 5% of the securities.

The reason why I'm disappointed is that this is not a change in the status quo. The mortgage securitization shops used to hold onto some of their securities because they couldn't sell them. The securities were so worthless they could not find anyone to buy them, so they kept them. After a long enough period of time, these worthless securities built up, and eventually bankrupted these shops. Here are two examples from one of my favorite bankrupt mortgage securitization shops, Novastar:

• NovaStar closes $1.25 Billion asset backed securitization


• NovaStar Closes $1.35 Billion Asset Backed Securitization
  

What I'm noting from these articles is that these companies always held on to some of their securitizations because they could not sell all of them. Requiring these shops to hold onto a small percentage of their securitizations is NOT a change for the better; it is not a change AT ALL!