Financialisation and the sub-prime financial crisis – Issues paper by the TUAC
05/09/2007
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The phenomenal growth of the derivative markets in recent years was seen by most financial observers as a positive development of financial innovation that helped spreading, and hence mitigating markets risks. The transformation of the US mortgage crisis in February into a global financial turmoil during the summer 2007 showed the opposite. The derivative markets served as an accelerant to the crisis. Contagion was fuelled by the opacity of derivatives’ asset price fixing and underlying risks, the widespread use of off-balance sheet and un-regulated ‘special investment vehicles’, the absence of publicly accountable supervisory market authorities combined with highly leveraged investment strategies of hedge funds. The broader debate on the appropriate reaction by financial authorities has only begun. This paper proposes some issues for discussion.
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