Indeed, they were Masters of the Universe, dominating an obscure credit derivatives market.
He wasn't the only one to sound alarms about the housing bubble and the explosion of the credit derivatives market.
One of the problems is the lack of clear information, outside the banks and trading floors, about the credit derivatives market.
With these improvements, growth in the market for credit derivatives is likely to continue apace.
One of the ways the market measures credit risks is by looking at the spreds of credit default swaps, a default insurance derivatives market that measures the risk of buying foreign bonds as compared to buying a comparable maturity from the US Treasury.
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Though considerably shy of the of 20 plus trillion dollar market for credit default swaps (derivatives also capable of mass destruction), pools of single-family homes wrapped in mortgage-backed securities blankets dwarf all other tradeable instruments.
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The existence of the potential for abuse, however, is no more an indictment of credit derivatives generally than it is of the stock market or any other useful tool of society than can sometimes be abused.
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Its traders pushed too far out on the ledge to make Merrill the leading bank in credit derivatives, a position that cost the firm dearly when the market dried up and Merrill got caught holding billions in securities with plummeting values.
Insiders say the biggest exposure may be in the interest-rate swaps market, which is many times larger than those for credit derivatives.
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During the financial crisis, the credit default swap (CDS) market, a part of the OTC derivatives market, took center stage as difficulties in financial markets began to intensify and the counterparty risk involved in a largely bilaterally cleared market became apparent.
The derivatives market weathered its last near-death experience in early 2005, when credit agencies downgraded the debt of General Motors and Ford, devastating the value of the most risky synthetic derivatives.
Ron Tanemura, the firm's head of credit derivatives, says that there is a grey area, but that Goldman will fall into line with market consensus, once there is one.
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