Friday, 29 May 2009

More Proof that Credit Default Swaps Caused the "Credit Crisis"

“It’s premature to judge that the credit meltdown is fully over,” said Kazuto Uchida, chief economist in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s largest bank. “Banks remain wary of extending credit to each other due to strenuous concerns about counterparty risk.”....

("Counterparty risk" is, of course, the term for the risk from credit default swaps.)

Real banking reform would have targeted the highly leveraged Derivatives market with the aim of abolishing the system. Failures in this fantasy market have resulted in the monumental losses and bankruptcies in the real world.

The financial system worked well enough without Derivatives in the past and it'll work just fine after they are gone.

[Posted at the SpookyWeather blog, May 29th, 2009.]

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