The Washington Post has one of its better stories on the rise and fall of mortgage securitization. My favorite anecdote in the story is on the last page, concerning the head of a firm that evidently sold a credit default swap to Wachovia, which made increasing demands for collateral to back the bet.

Uderitz has a less legalistic view. “They were obviously having some major, major problems,” he said. “I think there had to be a conscious shift in their thinking: Go get collateral from whomever we can. We have to save our *%&.”

In my view, his last two sentences describe institutional deleveraging in a nutshell. As I point out in my written testimony, a stern sheriff is needed to stop companies from reaching into each others’ pockets to grab short-term Treasuries.