Simple and sensible ideas operating in financial markets all too easily become layered, opaque and dangerous, at least in times of stress. The assumption is made that new technologies and transactions will improve efficiency and enable investment that otherwise might not have happened, with an assumed benefit to the economy. Instead, Lehman Brothers’ collapse and the financial crisis alerted us to complex securitisations, hidden leverage, mispriced risk, the ‘who-is-exposed-to-what?’ fears in over-the-counter (OTC) markets, as well as amazing ignorance of the big picture and asymmetry of information and contract terms.
Some of this is being fixed (not always without unintended consequences) but more things are coming to light as we peer into the abyss of the eurozone sovereign debt crisis.
