US regulator - derivatives "...one of the best innovations...a wonderful idea"

[WhiskeyGirl]

What brainiac said that?  Is there a secret memo or email in Washington? 

...and this is how we got there

The first half begins in 1994 at a JPMorgan meeting where its 50 top derivatives people were challenged by their boss - a Brit called Peter Hancock - to come up with some new ideas. That session launched the credit default swap (CDS), which would be counter-intuitive to most people. If banks want to free up capital, they can sell loans they have made - this is a tame concept. But the idea of the credit default swap was that banks could achieve the same objective without selling the loans. They only needed to sell the - wait for it - risk that the loan would not be repaid.

Is it too late to blame this on the Brits?

After 'cap & trade', the Obama administration will find a way to tax the air we breath.  We'll all be responsible for our own 'greenhouse' gas emmissions.

...So it asked a gentle giant - the European Bank for Reconstruction and Development (EBRD), which had more capital than customers - if, in return for a fee, it would care to assume the very slight risk that Exxon might go bust. The European Bank said yes. This left JPMorgan with just a sliver of income from the loan, but zero capital risk… and very little of its precious free capital tied up in the name of Exxon. It was ingenious, and it was not toxic. Ms Tett records that one senior US regulator told JPMorgan "it was one of the best innovations I have ever seen. It was just a wonderful idea".

Do secret memos, emails, and other communications from the EBRD that discuss the derivatives and CDS?  Anything at JP Morgan? 

Someone had to know this was going on.  I would hope someone, anyone thought this was a bad and dangerous idea.  Did they do this know it was a bad thing?  Would blow up in their faces?  Did they do any financial projections?

http://www.investorschronicle.co.uk/Columnists/NoFreeLunch/article/20090513/e38c39e6-3f9b-11de-a064-0015171400aa/Fools-Gold.jsp

Did Barney know about this do you think?