Several DerivSource members and my contacts have forwarded this blog to me in the last few weeks so I thought I’d post a snippet of this so you can all read it. Clearly, knowledgeable industry participants feel the need to give the rest of the world a reality check in just how derivatives work and what value they offer to the global financial market.
Here is the blog published on Wilmott…
Credit Default Swaps – Through The Looking Glass
By Satyajit Das
CDS contracts and credit derivatives are complex and powerful financial instruments that frequently have unforeseen consequences for market participants and the financial system. As former New York Federal Reserve President Gerald Corrigan told policy-makers and financiers on 16 May, 2007: “Anyone who thinks they understand this stuff is living in lala land.”
Financial innovation can offer economic benefits. A number of major benefits of CDS contracts are often cited by academic acolytes and fans, generally those promoting the product.
