Greenspan Was Right

Here’s a headline you don’t see often: “Greenspan Was Right.” Bloomberg is coming to the defense of Greenspan’s support for derivatives.

The former chairman of the Federal Reserve has been saying since 2002 that derivatives — financial agreements used to bet on everything from bond prices to weather patterns — actually reduce risks by making financial markets resilient to shocks. He told a Bond Market Association gathering in New York in May that derivatives are the most significant change on Wall Street “in decades.”
At a time when oil prices are above $70 a barrel, the Mideast is exploding and more than two dozen central banks have raised interest rates since May, derivatives are allowing companies to borrow a record $607 billion and obtain relatively cheap financing.
By bundling more than 10 percent of that into so-called collateralized debt obligations, bankers are able to provide more cash to companies, especially those that need it the most. Defaults fell to the lowest since 1997 as sales of CDOs rose 63 percent to $177 billion in the first half, according to the Bond Market Association, a New York-based trade group of dealers and underwriters.

Posted by on July 26th, 2006 at 11:09 am

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