Categorized | economy

The experts speak

This morning, I re-read Moorad Choudhry’s Introduction to Credit Derivatives from 2004, and came across this gem:

This isolation of credit [using credit derivatives] has improved the efficiency of the capital markets, because market participants can now separate the functions of credit origination and credit risk-bearing. Banks have been able to spread their credit risk exposure across the financial system, which arguably reduces systemic risk. They also improve market transparency by making it possible to price specific types of credit risk better.

All three of these assertions have been resoundingly falsified in the last year. They are the business equivalent of believing the world is flat.

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