The ticking parcel I failed to spot and the oil-price prediction I got spot on
Last week’s global stock market panic, the overture to this week’s astonishing round of state interventions, was in part provoked by fear of humongous losses in something called ‘credit default swaps’. These arcane inventions by Wall Street rocket-scientists are a form of derivative contract — or ‘weapon of financial mass destruction’, as Warren Buffett put it — akin to debt insurance. A ticking parcel of at least $400 billion worth of them relates to bonds issued by Lehman Brothers before it went bust. Since Lehman paper is now priced at only 8 cents on the dollar, enormous claims are about to emerge against the parties to the swaps. The trouble is, as New York’s insurance superintendent Eric Dinallo observed, ‘No one knows who owes this money, how much each counterparty owes, or whether any of these counterparties will now be in trouble themselves.’
As I read that, I recalled a misty day in April 2005 when I lunched in the private restaurant at the top of the Gherkin, the London headquarters of the Swiss Re insurance group, with three masters of the money universe, traders of 30 years’ experience apiece.
Comments
Join the debate for just $5 for 3 months
Be part of the conversation with other Spectator readers by getting your first three months for $5.
UNLOCK ACCESS Just $5 for 3 monthsAlready a subscriber? Log in