Consistent with H. Paulson's Book

Reader comment on: Financial Crisis Commission Dissent, II

Submitted by Lyle (United States), Jan 27, 2011 12:04

The issue was clearly that the financial system had become so intertwined that no one understood it anymore. Derivatives because they exposed counterparties to each other, made the interactions so complex no one could understand it. If I bought a CDS on A then my hedging depended upon the person who sold me the CDS. Given that likely I also sold that person a CDS on B etc, the large banks were so involved with each other that they had become in effect one super mega bank, this was made worse because derivatives were treated differently in bankruptcy than other assets. Paulson says in his book that when he arrived no one at Treasury had any kind of a handle on this entanglement.

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