The foreclosure crisis has highlighted again a major flaw of our modern economy: the fragility of ownership and property rights in the Internet age. Quite apart from the possibility of an electromagnetic pulse [EMP] field blanking out everybody’s servers, the sheer complexity of computer-managed structures such as securitization can make them very difficult if not impossible to unravel. At some point, we will all pay a major price for this flaw.Earlier this year we had a couple posts on dematerialized accounts (Demats) in India:
Securitization was always going to involve these kinds of problems. The idea that you can take a simple instrument like a home mortgage and dice up payments from it in hundreds of different directions, with mortgages being securitized and re-securitized, worked all right in the investment banks’ computers, but would never have worked on paper! Naturally, with sloppiness all round and a fair admixture of fraud, together with a lot of expensive lawyers available, the result has been an unholy mess. Even without fraud in the computer systems themselves, the passage of time, as not only the original deals but the original deal management systems become forgotten, will ensure that ownership rights become untraceable. For a substantial percentage – perhaps 5%, perhaps 10% – of the mortgages written between 2002 and 2007, this process will result in the property rights, in both the mortgage and the underlying house, becoming unenforceable because the evidence for them does not exist in unambiguous form.
While securitization has given rise to the most immediate problems, there are other areas in which property rights have been rendered more uncertain by computerization. Dematerialized bonds and stocks, the great back-office fad of the 1980s and 1990s, mean that investors are now completely dependent on the record-keeping capabilities of New Jersey computer servers. Banks, investment companies and credit card companies increasingly badger their customers to go “paperless” thus leaving themselves with no tangible record of their assets and liabilities.
The dangers of this are obvious. The science fiction threat of an “EMP” nuclear attack is far greater now than it was in the early days of the Internet around 1995-96, although electronic equipment was already as vulnerable then as it is now. Back then, banks still sent paper statements and transactions in general generated a blizzard of paper, even though the Internet was rapidly becoming a popular means of communication. Hence an EMP destruction of the 1995-6 Internet would have left us with written records of almost all significant transactions. That is far from being the case today. Far from having improved our defenses against EMP we have made ourselves infinitely more vulnerable. Like holders of California subprime mortgages with inadequate documentation, our property rights have been sharply diminished.
Ownership rights were not particularly solid in the ancient world; there was always the risk that someone with more clout or simply a bigger band of thugs would dispossess you. Outside Song Dynasty China, the first attempt at a society with solid ownership rights occurred in the reign of England’s Henry VII. He established the rule of law, even applying it to the baronage and setting up a system of Justices of the Peace to enforce prohibitions against random thuggery. His Tudor and early Stuart successors violated property rights frequently, but after the Restoration the protection of property rights increased rapidly – an increase that coincided with Britain’s economic take-off and to some extent caused it....MORE
Can Hindu Deities Open Brokerage Accounts Allowing them to Trade Securities?
UPDATE: Bombay High Court Rules Hindu Deities MAY NOT Trade Securities
No demat accounts for Hindu gods
MUMBAI: Let gods remain in temples and not enter the stock markets, said the Bombay High Court while dismissing a petition seeking orders to authorities to allow Hindu gods to open demat accounts.