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May 07, 2005

Greenspan Warns on Credit Derivatives

Alan Greenspan says:

FT.com / Capital markets - Greenspan warns on credit derivatives : By Richard Beales and Gillian Tett in New York: Rapid growth in the credit derivatives markets has created considerable uncertainty about how the global financial system might react to any new economic shocks, Alan Greenspan, chairman of the US Federal Reserve, warned on Thursday.The sheer complexity of derivatives instruments, in particular, coupled with the consolidation in the financial industry, made it increasingly hard for regulators and bankers to assess levels of risk, he said...

Translated into English, this means: "We don't know what financial institutions might be underwater after a large sudden drop in the dollar or spike in interest rates."

Posted by DeLong at May 7, 2005 05:07 PM