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Are these devices a clever way to disperse risk, making the financial system safer, as their enthusiasts claim?
The easy availability of money and new financial products intended to disperse risk led to a boom in mortgage lending and private equity acquisitions.
To further disperse risk, banks are also participating in so-called club deals where several banks lend on a single construction loan.
And banks – commercial and investment – are scared of the risk of failure, preferring to chop up and disperse risk finely, and then get bailed out when things go wrong.
The first is that it failed to disperse risk effectively; when push came to shove, the risks flowed back to the banks as toxic assets were returned to their balance-sheets.
That crisis, too, had its origins in invention with a benign aim: the packaging of mortgages for use as securities for bonds was intended to reduce borrowing costs and disperse risk.
Similar(53)
Senior executives dream of creating agile networks of global information technology service providers to lower costs, increase quality, implement seamless sunrise-to-sunrise production, reduce response time and disperse risks.
This is a good way to disperse risks and share each other's unique resources.
Dispersing risk ought to make the system more secure.
Securitisation the bundling of mortgages into securities that were sold to investors diversified and dispersed risk.
They go in for complicated financial instruments that promise "riskless risk" by dispersing risk into a million small pieces and casting them into the ether.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com