Leading derivatives trader and expert Satiyajit Das wrote a must-read article today pointing out the falsity of the justifications used by both buyers and sellers of credit default swaps and other complex forms of “financial innovation”.
Here’s the most important excerpt:
The unpalatable reality that very few, self interested industry participants are prepared to admit is that much of what passed for financial innovation was specifically designed to conceal risk, obfuscate investors and reduce transparency. The process was entirely deliberate. Efficiency and transparency are not consistent with the high profit margins that are much sought after on Wall Street. Financial products need to be opaque and priced inefficiently to produce excessive profits or economic rents.