types of model uncertainty and more likely to be liquid even in times of market stress. thus, this new infrastructure might allow investors gradually to regain confidence in their ability to assess the risk - return tradeoffs inherent in mbs, allowing them to reconsider how those securities may best fit into their overall portfolios. as i mentioned, in principle, mortgage securitizations make good economic sense : by providing access to the broad capital market, securitization allows loan originators to access a wider source of funding than they can obtain directly. in addition, securitization can limit an originator's exposure to prepayment risks associated with interest rate movements, to geographic concentrations of loans, and to credit and funding risks associated with holding mortgages all the way to maturity. effectively, securitization can significantly lower the cost of extending home loans, and some of those cost savings can be passed along to homeowners in the form of lower mortgage rates. it seems clear that the housing government - sponsored enterprises ( or agencies ) played an important role in the development of mortgage securitization in the united states. in large part, the broad appeal of agency mbs can be traced to the explicit guarantee of the securities by the sponsoring agencies. this agency support may have meant that the returns to undertaking a thorough and costly credit analysis of underlying mortgages in agency mbs pools were low, so that task was essentially left to the agencies themselves. indeed, even as agency mbs issuance took off in the 1970s and 1980s, the most basic infrastructure needed to conduct credit analysis on home mortgage pools – comprehensive loan - level data that was broadly accessible in a standardized format – went essentially undeveloped. the paucity and inaccessibility of data about the underlying home loans was, in my opinion, one of the reasons that private - label mbs was able to expand so rapidly in 2005 and 2006 despite a deterioration in underwriting and prospective credit performance. that is not to say that better data would necessarily have led investors to completely sidestep the private - label mbs that have caused them so much difficulty. but i do think it was a significant hindrance that the information needed to infer, in real time, the extent to which subprime and alt - a mortgage underwriting was sliding simply did not exist in a form that allowed the widespread scrutiny or objective analyses needed to bring these risks more clearly into focus. thus, i believe that markets for private

in the cash flow obligations to each tranche, but there was also much variation in other important provisions, such as duties on servicers of the loans in the pool and the representations and warranties that govern the circumstances under which poorly performing loans can be put back to the originator. thus, even if comprehensive data on the loans in the pools had been available, a thorough credit analysis would have required both a detailed reading of the deal - specific documentation describing a particular deal's potentially unique structure and a careful analysis of how its cash flow prioritization would affect returns to holders of the particular tranches of securities as laid out in the contract. although such an analysis is possible, it may be beyond the available resources for many investors. i believe that more homogeneous mortgage securitization contracts could significantly lower the barriers to entry for credit analysts, thereby promoting greater transparency and perhaps more confidence among investors about the securities'underlying risk - return attributes. third, larger tranches in private - label mbs could have a couple of key benefits. for instance, investors might view larger security issues as being more likely to sustain liquid trading conditions, which would allow investors to rebalance their portfolios, as conditions evolve, at reasonably predictable prices and with transaction costs comparable to those of other securities traded in " thick " markets. in addition, as has become evident, tranched securitizations are exposed to tail risks – situations that can be expected to occur only rarely but which convey very negative returns. my intuition is that thinner tranches are more vulnerable to tail risks, because it seems more likely in the latter case that widespread credit losses in the underlying loan pool could wipe out designated cash flows for the entire tranche – so - called nonlinear, or cliff, effects. thus, future mortgage securitizations that rely on simpler cash flows and larger tranches might reduce some of the exposure to tail risks and enable investors to gain confidence. see global joint initiative to restore confidence in the securitization markets ( 2008 ), restoring confidence in the securitization markets, a report sponsored by the global joint initiative's steering committee, a consortium of the securities industry and financial markets association, the asf, the european securitization forum, and the australian securitization forum, december 3. as an aside, i should note that i do not expect a revival for some of the most complex structures that were created in recent years to finance a portion of subpr