Former Federal Reserve Chairman Paul Volcker said flaws in financial products such as credit default swaps and collateralized debt obligations helped push the world economy close to another Great Depression.
The crisis brought the economy to “the brink of a Great Depression” that “would have destroyed a lot of the global economy,” he said.
“I hear about this wonderful innovation in financial markets; credit default swaps and CDOs took us right to the brink of disaster,” Volcker, an adviser to President Barack Obama, said Tuesday at a conference in Horsham, England.
“Innovate all you want,” Volcker advised, “but do it in a structure that does not put the economy at risk.”
Credit default swaps transfer the credit exposure of fixed-income products between parties. Collateralized debt obligations are securities backed by a pool of bonds, loans and other assets such as high-risk mortgages. In this case, many of the mortgage holders defaulted.
— Bloomberg News
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