Arts & Weekend section (March 24, 2006) had an interesting article on the role played by JP Morgan bankers (and ex-bankers) in the creation of the market for credit derivatives -- The Dream Machine
. An interesting quote from that article:
And what of the future? Some of the leading figures, such as Masters, think there is room for more innovation in the credit derivatives world. For while the basic ideas are now so widely dispersed that they are almost “mass-market” for traders, she believes that “the point about that process is that when something becomes commoditised it lets you create second- or third-generation products”. That should make it easier for bankers to reassemble these derivatives in new and more complex ways - in much the same way that it becomes possible to create more complex computers when there is mass-market production of circuit boards. The next round of innovation, in other words, will be derivatives of credit derivatives, or even “derivatives cubed”.