Today's debate about financial services reform has been infected by a puzzling confusion — the failure to distinguish between exotic mortgages and traditionally underwritten mortgage products. It's an essential distinction, one that goes to the heart of the problem Congress seeks to fix.

A one-size-fits-all approach to reforming the securitization process has been driving the debate so far. Legislation passed by the House, and a similar provision expected to come before the Senate Banking Committee this month, would require lenders and securitizers to retain up to 10% of the credit risk on every loan sold or securitized.

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