John, i agree that derivatives per se won't cause anything. but like you say, a true MCHVE hasn't yet occurred, and what's more, the phenomenal growth of derivatives coincided with a recession-free environment.
the very same environment has of course fostered a permissive risk taking attitude generally. that would include the quality of credit, which i am convinced has declined in recent years.
even now, with the economy cooking on all cylinders we have extremely high junk bond default rates, which according to S&P are set to rise markedly this year.
since you mention the non-financial sector, i believe that the areas of high growth (telecommunications in the broadest sense) have seen their debt levels explode to a rather daunting level...heck, you could say that of the whole private sector, but this one specifically has seen lots of debt based investment in what has become an awfully crowded marketplace.
the question is of course, will the margins ultimately be there to support all these ambitious investments?
already we have seen a few rather spectacular wrecks, like Iridium...soon to be followed by Globalstar. firms like Global Crossing have seen the pricing for their product deteriorate at enormous speed. there's going to be a big shakeout down the road, and with today's complex markets, the unexpected can probably be expected...<g>
in fact i would argue that a true stress test for the system is highly likely to occur at some point. |
