The most notable thing about the current crisis in the financial markets is the nature of the instruments that caused the trouble. The subprime mortgage debacle would have been bad enough by itself, but it has been aggravated out of all proportion by marketing of mortgage obligations as CDOs, sliced and diced in backroom chop shops, blessed by the laying on of hands by the rating agencies and sold over the counter to the unsuspecting. In fact the regulation of these instruments was strictly hands-off. Similar things can be said of the rogue portfolio of credit default swaps that brought about the near-collapse of AIG. The common thread here is that all these factors conspire to confound scrutiny and to frustrate attempts to trace obligations back to the originators, in a word, to undermine transparency.
Keywords: Enterprise Risk Management
