Months ago we said that the complex products known as securitized mortgage products needed to be more standardized so that they could have been exchange-traded. (We admit this would not have been easy but to that we say, were option chains easy when they were first developed?)

Exchange-traded means the market for these packages of mortgages would have included more than the primary players – the banks. Exchange traded means you would have had other time-frame players willing to buy and sell these packages of mortgages. If you had more people willing to buy and sell, some would have been willing to take risk on different segments and at different points in time. That would have given various banks more options simply by providing additional liquidity, it would have prevented the complete lock-up that we ultimately ended up with.

I don’t know for sure what the CME is doing on this … but I suspect that in the future we will see something. How about a regulation that says any new financial product created HAS to be exchange-traded within 3 years. Now… that would be free markets!