My "Red Rant" spiel on the excellent, must read CNBC story.

TEN YEARS LATER, TOBACCO DEAL GOING UP IN SMOKE
http://redtape.msnbc.com/2008/11/ten-years-later.html#posts
Redrant: Greg Lang
The Tobacco Master Settlement happened shortly after the Minnesota tobacco trail ended. I'm surprised it's been ten years. I saw the effort then and now as a defacto "tax". I fully read the first proposed national settlement. Essentially it was a per pack "fee" on cigarettes from those who agreed to the settlement, essentially "big tobacco". New entrants into the market and "small tobacco" (niche brands and imports mostly) could agree to join in the settlement at the same per pack rate and be covered. If they declined to join the settlement they would need to place 150% of the per pack "fee" in escrow until it is released by a court after there is no potential for claims against the money.
Anyone who has dealt with a contested estate knows that the claims can go on forever. A growing supply of money escrow invites litigation "creativity". As an example one local company made a product used in a tiny fraction of the old silicone breast implants. They were constantly facing lawsuits for their one to two percent market share basically because the rest were made by companies that went bankrupt once the litigation started. For so called "small tobacco" with limited resources it was generally easier to "switch than to fight" (pun intended).
The irony here is that the legal logic behind the original tobacco litigation was the claim that the cig makers were concealing information about the dangers of their products. Under law a product can be dangerous. It's the known concealment of danger that gives the grounds for litigation. As an example, bicycles has one of the highest injury rates per mile of any vehicle. This is not grounds to sue.
Now let's say that you build a bicycle with a front springer fork with a cable operated disk brake. Let's say the cable is too short or designed to be attached in a way where it can crimp and apply the brakes hard when the fork spring is fully depressed. Let's say this locks up the front wheel so the rider is flung forward off the bike.
As example two lets say you are a legal distiller producing gin to the "gin mill" trade. (think "skid row"). The "booze" itself is not healthful but "Willy the wino" has no grounds to sue.
Now let's say the distiller discovers that repairs to the gin making equipment were made using lead based solder. Lead leaches into the cheap gin and causes medical problems like blindness or lead poisoning. The gin then represents a defective product. Getting the lead out will be costly so there is a temptation to hide evidence of lead poisoning. Same with the bicycle. If you determined the brake cable was too short but you already had a batch made up you might be tempted to use them.
In both cases litigation is a counter to this behavior. I won't rehash the smoking litigation logic but it involves a known concealment of an unstated defect or danger. In the case of gin, the government regulates the lead content so the government has the option of making something potentially harmful illegal (lead laced gin) or accepting as legal a product that is potentially harmful (IE: Gin. For that matter, I have not heard of any health claims for distilled liquor except as an emergency disinfectant).
The 150% "escrow" requirement assumes that the small and new cig sellers are going to deceive the public about the health risks of smoking. First off, our society is awash with claims about the dangers of smoking so if smoking is unhealthful (it is!) it a very badly kept secret. Also, a new seller knows the "history" so they are careful with their claims. Also, it's pre-emptive punishment before a "crime" is committed.
The real issue is that with "big tobacco" and others in the settlement paying a "fee" of perhaps a dollar or more per pack this leaves opportunities for new competitors in the market. To give an analogy, let's say all the butchers in a town were "in cahoots" with local inspectors so they under weighted by 10%. Now let's say a higher government agency got word of this and set up a "sting" where they followed this for a long time. When the bust came the all the local butchers got their "clocks cleaned" and they all had to raise prices by a third to cover the settlement costs. Let's say an honest butcher came into town and set up shop. The new butcher would have a definite cost advantage. Now let's say, the new butcher could sell meat or foul at $1 per pound. With the settlement costs "big butchers" have to charge $1.35. The new butcher would obviously have a competitive advantage. Now lets say the "city" reasons that the new butcher might cheat so the new butcher must put fifty cents per pound of meat or foul sold in escrow against this contingency. Thus the new butcher, who has committed no deception could join and charge $1.35 or not join and charge $1.50 with the fifty cents in escrow.
This obviously makes for a very poor business model for the new entry. If all cig sellers have to pay the same "fee" it is essentially a tax and a "level playing field". To give an example of this gas prices have varied in the last year but stations competed in a very limited range depending on the market. $3.60 used to be "cheap" now $1.60 is "cheap". In both cases the "spread" was minimal, maybe ten cents per gallon. If someone could sell gasoline at fifty cents less per gallon there would be "demand".
This is getting long but I want to get to "securitization". I looked into this maybe five years ago. The media gets a lot of it wrong. The first example is the big lottery prizes. Everyone knows that for Lotto America jackpots "a bird in the hand is worth two in the bush" in the sense that if you take the "lump sum" it will be about half of the total of 25 years of structured payments. Interestingly, the first really big Lotto America jackpot was won by a cheesehead who took the lump sum and vowed to get a Harley with a sidecar. This happened at the same time as the Minnesota settlement and the local media described the Cerisi law firm front end settlement as the same as structured payments. Unbelievable! The average lottery ticket buyer understood "time value" better than the media.
I'll use my first FHA 30 year 8% mortgage as an example. I got a mortgage for $57K with payments of $422 per month. Doing the math $422 x 360=$151,920 If it was bought for $57K the day of the mortgage that would be a 37.5% "yield". That sound bad but it represents the "time value" of the money. My mortgage was transferred several times, I have no idea the price but there is also risk factored in. In my case my loan could be prepaid, I refinanced the mortgage twice before paying it off. A lot of factors affects someone buying or "scrutinizing" my mortgage but risk of repayment is a major one.
I have been following this for ten years. The smoking ban efforts have gone "viral" in the last two years. A regular reader of http://freedomtoact.com/ will know this. The current stock market is depressing "securitization" to be sure but if you "follow the money" tobacco securitization is is another example of "creative financing" by the likes of Bear Stearns that either went under or needed government finance to survive. We have a financial crisis now because of institutions that embraced these "creative" financial instruments.