A guide for the perplexed

Michael Greenberger, a former Director at the Commodity Futures Trading Commission and now a law professor, was on the radio last night addressing the question “Could Wall Street Woes Trigger a Global Crisis” (short answer: yes). For anyone who managed to get through law school without learning what a credit default swap* is, the interview provides an excellent primer on complex financial instruments. It is also scary as hell. Listen here.

Here is a (paraphrased) sample:

“The credit derivative market is estimated to exceed $62 trillion—exceeding all the money in stocks and bonds combined…it’s not some little sideshow, it’s become the predominant method of transacting business in this economy. That is why I teach this class (“Futures, Options and Derivatives”)—I think young lawyers should be armed to understand complex financial instruments —I am one of the very few law professors who try to explain them—most law schools are still worrying about stocks and bonds.”

-posted by brian

*“Really insurance but not regulated like insurance; really a futures contracts but not regulated like a futures contract”