Ezra Klein tries to explain what derivatives are to better understand Financial reform.
"Here's the good news: You don't need to understand the different types of derivatives. All you really need to know is that financial firms trade derivatives, they're worth an extraordinary amount and there's a category of them that's almost totally unregulated. That's a big part of the reason why the financial crisis was as severe as it was: We had no idea how many derivative contracts these major firms had with each other -- and with everyone else. So when Lehman fell and other banks threatened to follow, no one could predict the consequences. "What we mean when we say a company is 'too big to fail,'" says the Roosevelt Institute's Mike Konczal, "is that they have too much derivative exposure too fail."
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