I've just spent some time puzzling over my paper copy of the Wall Street Journal; there's a version online here. The article explains how Norma, a New York company, created a series of financial instruments based on the disaggregation of risk. The problem, according to the article, is that the risk was insufficiently disaggregated and that instead of mitigating risk the financial instrument magnified risk.
I am still trying to undertand all the machinations — how did Wall Street firms manage to resell the same risk three times? — but the article makes interesting reading. Reading between the lines of the Wall Street Journal's style, I think the Journal believes there's been criminal misconduct; this article reminds me of the one that exposed outright fraud at L&H.
Topics: · finance
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