What many people dont understand about business and investing is that the rules of the game are always changing even as you learn them. People who argue that "it has never happened before" should take note.
Credit Derivatives Get Spotlight
A group of finance veterans released its report on financial-markets risk yesterday, highlighting the mixed blessing of credit derivatives, financial instruments that barely existed the last time the markets seized up almost seven years ago.
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Credit-default swaps are increasingly important in the financial world. But the way they are sliced and repackaged means that purchasers may be holding hugely sensitive securities whose value can change a great deal even when the movement in the simpler world of corporate bonds has been far less. And because these instruments are not traded on any exchange, prices and valuations can pose challenges, something the report seeks to address.
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The report recommends that market players "be alert to the potential for overall leverage in the system to increase, arising from liberalization of credit terms...or the development of new structures that facilitate the taking of leveraged positions in new forms."
