to distribute ” model of loan origination may have contributed to this decline in underwriting standards. under this model, brokers or lenders sell the loan to a third party, typically a securitizer, who then issues securities collateralized by mortgage loans to investors. this model technically describes securities guaranteed by fannie mae and freddie mac as well as private - label securities sponsored by financial institutions such as commercial or investment banks, but problems were more acute in the private - label market. although the private - label originate - to - distribute model may have worked adequately at first, this discipline eroded as the securitization boom progressed. originators and securitizers were generally able to complete securitization transactions while retaining very little or no economic stake in the performance of the loan after the sale, although some of these see christopher mayer, karen pence, and shane sherlund ( 2009 ), “ the rise in mortgage defaults, ” journal of economic perspectives, vol. 23 ( winter ), pp. 27 – 50. bis central bankers ’ speeches securities did ultimately make their way back onto the balance sheets of certain financial conglomerates, much to their dismay. as a result, originators and securitizers had an increasing incentive to weaken underwriting standards in order to increase the volume of loan origination, and thereby the volume of securitizations. as securitization developed and became more prominent as a source of financing for mortgage lending, representations and warranties were one of the main tools market participants relied on to align incentives among originators and securitizers on the one hand and investors on the other. these provisions describe the underwriting standards and other matters with respect to the assets that are the subject of the securitization. the originator, in principle, is required to refund at par ( less payments received ) the value of the loan should it violate the originator ’ s representations and warranties or in some cases, should it default within a specified time from origination. in practice, however, representations and warranties did not function as intended. first, as in the case of servicing, contracts in private - label mortgage securitizations varied considerably from deal to deal, and there was no consistent language or standard for representations and warranties. therefore, a poorly underwritten mortgage loan could breach the representations and warranties of one deal ’ s contract but not be a violation of representations and warranties in

simply put, economies are constantly under competitive pressure to re - invent themselves. as they move toward higher levels of productivity, they necessarily make other production technologies obsolete. schumpeter cautioned that economic policymakers who fail to appreciate the relationship between the relentless churning of the competitive environment and wealth creation will end up focusing their efforts on the methods and skills that are in decline. in so doing, they establish policies that are aimed at protecting weak, outdated technologies, and in the end, they slow the economy ’ s march forward. in retrospect, we can tell that some economic policies of the past century have inadvertently, or in some cases intentionally, done just that. they have had the effect of directing or misdirecting economic growth by either substituting policymakers ’ judgment regarding the distribution of an economy ’ s assets for the combined wisdom of individuals or allowing markets to send false signals. in the long run, such policies were destined to fail. the economic policies of the last century a very broad reading of economic history reveals that policymakers in many countries during the last century attempted to manipulate trade and other forms of economic activity by altering, artificially, the measures of value, that is, prices. one such policy followed by some countries during the last century was known as the “ beggar thy neighbor ” policy, the manipulation of the exchange rate in order to boost a country ’ s exports. trade restrictions were also often used to protect domestic industries from imports. a final example from the international sphere is the system of global fixed exchange rates that emerged following the second world war. to blunt market forces, fixed exchange rates were usually accompanied by capital controls that tried to manage the inflows - and more importantly the outflows - of a nation ’ s investment funds. ultimately, this system of global fixed exchange rates worked poorly and could not withstand the market forces that emerged in the 1970s. in a similar spirit, some economies used taxes or other incentives to promote one industrial activity or discourage another. obviously, the most egregious form of this policy was in planned economies. but many democratic economies, as they recovered from various wars and other national traumas, nationalized entire industries. in our society, we never found that degree of government intervention appropriate, but we did regulate some business decisions for certain industries, such as electric power distribution and airlines, attempting to overcome the “ natural monopoly ” or “ excessive competition ” characteristics perceived in these industries. finally, some central banks in