The New Danger From Derivatives
Bloomberg View
Global regulators are turning their attention to an important piece of unfinished business: ensuring that a bad bet on derivatives can’t upset the entire financial system. They’ve hit on a good solution — as long as they can prevent it from becoming a threat in itself. The 2008 financial crisis proved that derivatives had gotten out of control. Some participants were making huge bets — say, on the likelihood of bond defaults — without putting up collateral to guarantee payment if the bets went wrong. When U.S. insurer AIG couldn’t make good on almost $50 billion in derivatives-related debts, it nearly brought down several of the world’s largest banks.
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