, Columnist
The Risk of Derivatives Isn’t Gone. It’s Merely Morphed.
The problem child of the 2008 financial crisis now lives in central counterparties.
This article is for subscribers only.
Markets have served a timely reminder of the latent risk from derivatives — the wild beasts of finance. Ten years after the collapse of Lehman Brothers Holdings Inc., almost to the day, a private trader and one of Norway’s richest men suffered 114 million euros ($132.6 million) of losses on energy-futures positions traded on Nasdaq.
The default ate through around two-thirds of Nasdaq’s mutual default fund, using up several layers of protection. Members of the clearing house must now make substantial cash contributions to rebuild that cushion.