Lawyers Back Paulson's Credit Crunch Proposals
March 25, 2008, International Financial Law Review

US Treasury Secretary Henry Paulson has made a list of recommendations to help defray the effect of the credit crunch on the US market.   Legal advisors agree with some, but not all of his proposals.

"There's some real value in that," said Richard Reilly, a partner in the Securities Practice at White & Case in New York, regarding the suggestion that ratings agencies "treat structured product ratings" differently.  However, he disagrees with the suggestions that CDOs should have to provide more disclosure.

"If the government places additional burdens on CDO issuers that increase legal fees, the cost of third-party service providers and the need for regulatory approval, they may outweigh the benefits — transparency and restoring investor confidence," said Reilly.

Like most legal advisors, Reilly is not sure if addressing liquidity issues with covered bonds will be effective.  "If it creates a covered bond market in the US remains to be seen," he said.