This month, Wall Street is back with a new lobbying campaign. But this latest battle is not about bank capital or bonuses; instead the issue is something that looks almost retro: credit derivatives.
Back in last decade’s crazy credit bubble, these products boomed. But since then, trading in so-called single name credit default swaps, or instruments which let investors bet whether a specific company or country will default, has withered: activity is now a mere third of 2008 levels (although the picture for index products is better).
Now, however, some big financial institutions — along with lobbying bodies like the International Swaps and Derivatives Association — want to stage a retro revival. Rebuilding credit derivatives, they argue, will make modern finance considerably safer, particularly if (or when) the US Federal Reserve finally puts up rates.