The Invisible Elephant in the room

At the beginning of the crisis it was broadly communicated that the securitization of debt in some many different forms, and the insurance on that debt was a significant problem in determining the path taken to repair the finnacial system and restore confidence.  Figures of Trillions of outstanding CDS, CLO, CDO, SIV and other forms - up to $60T or up to $600T.  These were notional values, and reflected a complex maze of international finance.  I will always recall that when the crisis broke in late 2007, there was much talk about dealing with it quickly, and with determination.  Seems little has been done, but also maybe it wasn't so terrifying afterall?  I'm still not so sure.

So what’s become of credit derivatives? (Financial Times)

By John Dizard

Published: December 12 2010 09:51 | Last updated: December 12 2010 09:51

What happened to the credit derivatives market? You remember, the market that was supposed to threaten the whole world with annihilation, but was then heroically brought under control by courageous political leaders and central bankers? The one that was the target of “Wall Street Reform”?

Much, much less than you think.

In a way, the much-denounced excessive complexity, riskiness, and incomprehensibility of the credit derivatives market have saved it from populist retribution. The media, political class and general public were told that Wall Street and the City had created a pile of unstable explosive devices. They had to keep calm and let the experts disconnect the wires to keep everyone’s money from blowing up. The experts were the people who created the stuff or regulated it from the beginning.It suits the large banks and the curiously well dressed politicians who oversee them to agree that the derivatives market people are groaning under the lash of regulation. In truth, credit derivatives professionals are still being very well paid, and their employers are still making outsized profits, albeit from somewhat different conceptual “products”. There is probably a fifth fewer people employed in the business than there were in the autumn of 2008, but that’s a much better survival rate than even the insiders expected.


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