We made it too complicated

Author: | Published: 1 Mar 2008
OP-ED: THE VIEW OF LEE BUCHHEIT
When history looks back on this crisis, a big culprit will be the astonishing complexity of modern financial instruments and the drafting of their contracts

This is a time of great turmoil in the credit markets. In the past six months, tens of billions of dollars of investments in debt instruments have been written off. Powerful financial institutions have been humbled. Some of those institutions have been forced to sell large equity stakes to unconventional investors to preserve minimum capital ratios.

The history In the past 30 years, several disturbances have taken place in the international capital markets, some even more severe than this one. The global debt crisis of the eighties, the savings and loan debacle in the US, the Asian debt crisis of 1987, Russia in 1998, and the sovereign bond defaults in 1999 are good examples. Each of these incidents had two...