Clearing the name of derivatives

Credit derivatives have taken a lot of blame for the current crisis, but centralised clearing could help to revive the market.

On the weekend of September 13, 2008, when then-New York Fed president Timothy Geithner called a special meeting to discuss the future of Lehman Brothers, nobody knew how the bank's failure would affect other market participants. It was impossible, during the course of a weekend, to figure out the complex web of bilateral bets the bank was involved in.

In the end, the effect of Lehman's bankruptcy on the credit derivatives market was much bigger than the losses on those...

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