A structured deal worth over a billion dollars. Hundreds of pages of flawless contracts, perfected security interests, everything signed off by top firms. Then a couple of junior associates file a termination statement with language that is too broad, and security interests no one meant to release get released. Magically, in the words of the attorney who told us the story. Real losses, caused not by the market or the borrower, but by one badly drafted piece of paper inside a mountain of well-drafted ones.
That attorney is Jesse Miller, founder of Structured Execution and a veteran of asset-backed finance in the US, our guest on the latest episode of All You Can Debt. And his thesis carries particular weight coming from someone who makes a living drafting contracts: documents don't create discipline. People do. The industry overestimates how much risk legal documentation actually mitigates.
The deal that drifts away from its contract
Horror stories don't always explode. Sometimes they leak. Jesse describes a pattern he has seen repeat itself: a deal closes with clear obligations, monthly loan tapes, certificates, conditions. And over the years, execution drifts away from the contract. Deliverables thin out quarter after quarter. There's turnover on the lender's team, oversight dilutes, deficiencies get let slide. By the time someone finally raises a hand, there are deemed waivers of defaults piled up that no one consciously authorized.
The legal framework shows no mercy either. The UCC works like a strict liability regime: one missed technicality can destroy rights that took months to negotiate. Financing statements lapse after five years and the state doesn't notify you; someone has to remember to renew them. In one famous case, no one filed the continuation on a massive facility, a bankruptcy arrived, and creditors who thought they were senior discovered at the worst possible moment that their priority had expired by calendar.
"That wasn't my problem"
Valentina put on the table the moment that best portrays the market: when the recent frauds blew up, everyone called their lawyers and their teams with the same question: who was supposed to be checking this? And the answer, down the line, was the same: not me. I never agreed to do that.
No one was lying. That's the point. In US deals, oversight roles are defined by contract, and frequently defined by lists of what each party does NOT do. The job of watching the collateral every day wasn't assigned to anyone, because no industry standard exists to assign it.
What emerging markets learned the hard way
Here the conversation took a turn few expect: on this front, Latin America is ahead. Juanpa explained it from the inside: every regional scandal produced infrastructure. Centralized registries for electronic notes and invoices where, if the endorsement isn't registered, the asset literally doesn't exist in your name. And foreign investors, who saw everything with more risk, demanded roles that in the US remain the exception: verification agents, master servicers, backup servicers integrated into the operation.
The starkest difference is cash. In LatAm, the master servicer controls the flows from the collections account: every peso that comes in gets tied to a specific loan and a specific SPV before it moves. In the US, that work is done by the originator itself. Jesse acknowledged it plainly: American transactions lean too heavily on the integrity of the originator, and the recent frauds are the evidence. Valentina's observation sums up the episode: look at the majority of frauds, and you would have had far more leverage to prevent them if someone had been watching the cash the whole time.
Inertia as structural risk
So why doesn't it change? Because precedents rule. Jesse works on documents whose structure hasn't been touched since the 1990s, Frankenstein monsters that every crisis stitches one more clause onto. His forecast is uncomfortable coming from an optimist: sometimes the only way the needle moves is deals breaking.
We prefer the other route. The discipline the contract promises only exists if someone operates it every day: verifying that the collateral exists, that it belongs to who it claims to belong to, and that its cash lands where the contract orders, against the source and not against the report. That is exactly the job that, in the calls after the frauds, no one had agreed to do. It's the job Vaas does.
The full conversation with Jesse Miller, including how he explains structured credit to his six-year-old with a pencil and an eraser, is on the new episode of All You Can Debt.
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