First off, I realize that my posting has been extremely light lately and that mostly is a direct result of it being my last few weeks of the MBA program.  In any case, yesterday and today I came across some very interesting articles and managed to have a good discussion with one of my old Finance professors about the effects of the credit derivatives market growth.  Paul Kedrosky posted a link on his blog yesterday (here) that summarized the findings of the ISDA for 2007.  At first glance I didn’t think too much of it but after some short reflection and further analysis of the actual article, I was blown away by the size and massive growth in this market. A few quotes below summarize it best:

The notional amount outstanding of credit default swaps (CDS) grew 37 percent to $62.2 in the second half of 2007 from $45.5 trillion at mid-year. CDS notional growth for the whole of 2007 was 81 percent from $34.5 trillion at year-end 2006. The survey monitors credit default swaps on single names and obligations, baskets and portfolios of credits and index trades.

Notional amounts of interest rate derivatives outstanding, grew almost 10 percent to $382.3 trillion in the second half of 2007 from $347.1 trillion at mid-year 2007. For the year as a whole, interest rate derivatives notionals rose 34 percent from $285.7 trillion. For the purposes of the survey, interest rate derivatives include interest rate swaps and options and cross-currency interest rate swaps.

This type of increase in the market is astounding and that type of growth has to make certain individuals leery of impending problems.  On that topic, I spoke with one of my professors with experience in this area and he noted that his major concern would be ensuring that the companies for which he is a board member understand the nature of those financial instruments.  If anything, this market is definitely one to watch and with this type of growth, who knows what will happen.

The second interesting news tidbit I wanted to cover was a NYT article about hedge fund manager’s wealth accumulation this past year.  For instance,

One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them

Although I do not oppose such profits and the ability of these managers to seek out opportunities and exploit them (I would utilize those same opportunities), I do feel that this will bring a great deal of scrutiny upon the hedge fund market.  With those profits and that much publicity, regulations will surely be considered to “close the gap” between the financial elite and the less savvy individual worker.

I will do my best to get some more posts up intermittently between all the other activities sapping my time.

• BROWSE / IN TIMELINE
• « You shall not pass!!! (or IPO)
• » New NIN track

• BROWSE / IN Other VC
• « You shall not pass!!! (or IPO)
• » New NIN track