Monday, July 2, 2007
Tricky little buggers, those CDS and CDOs….
There is a rather dispiriting resemblance between the latest credit crunch and the bursting of the dotcom bubble.
Ahead of each, there were plain warnings not just of what would happen but how and why. All that was missing was when.
But there is one fresh angle this time. The market has been struck by the disturbing notion that credit derivatives might not be worth what they were supposed to be. This should hardly be news to anyone who read Warren Buffett’s broadside against derivatives four years ago. There is no market, he pointed out, for complex derivatives. So instead of being marked to market, they are marked to model – or in some cases, marked to myth.