Things That Blew Up

The best history so far of the development of some fatal financial instruments is Donald MacKensie's review of Gillian Tett's book on JP Morgan's role in inventing a new kind of collatoralized debt obligations. The piece makes the technicalities clearer than any other - read it! the key passage:

As the historian of economics Perry Mehrling has pointed out, events in financial markets cast shadows ahead, not behind. What has loomed over the banking system for the last two years is the shadow of the gigantic, system-wide default of the super-senior tranches of all the CDOs based on the US mortgage-backed securities issued towards the end of the bubble.

If you don't know what that means - read the article! It's help on the shape of thing to come.