Financial Times warned against them. So did Warren Buffet, Alan Greenspan, Jim Sinclair and the chief economist at Morgan Stanley.
Derivatives they said could facilitate a global financial collapse like what sunk Barings Bank, Orange County and the Long-Term Capital Management practically overnight.
(And did a number on Chase Manhattan, Bankers Trust, American Express and Barclays Capital.)
Sure banks and financial institutions love the structured investment vehicles--especially collateralized debt obligations (CDOs)--because they let them get loan risk off balance sheet and take on more lending. And they can hold them at cost without recording losses or marking to market--or so accounting rules indicate.
Sure the rich like the cyber-constructs as tax dodges in their Cayman Islands registered hedge funds.
Sure traders love their leverage power--kind of like investor crack--which exceeds any position they could take in the cash markets....
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