Transparency through FinancialClaims with Fingerprints –A Free Market Mechanismfor Preventing MortgageSecuritization Induced FinancialCrises

Lack of transparency in securitization transactions significantly contributed to thesevere financial crisis of 2007–2009. To increase transparency we—based on arecent idea by Markowitz (2009)—propose an incentive compatible mechanismfor future securitization transactions: financial claims with fingerprints. Theywould allow market participants at each stage of the securitization process toobtain easily full information about the underlying original risks and the superiorclaims that need to be satisfied before receiving their own payoffs. The fingerprintmechanism would considerably enhance transparency in securitizationtransactions at the expense of some transaction costs, while reducing the need forgovernment involvement in securitization markets.