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The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . an by Nicholas Dunbar

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CHAPTER FOUR

The Broken Heart Syndrome

CDOs got a big push from J.P. Morgan and Deutsche Bank, which brought their high-powered sales, trading, and quant teams into the game. But to make real money, traders needed to do an even better job of hiding the risk these investments carried. That required a Black-Scholes of credit, a new mathematical model that seemed to make the risk in credit derivatives disappear. Ratings agencies struggled to keep up with the new innovations, while dealers raked in billions while quietly paying off the most vocal of their disgruntled clients. A blip in the market in 2005 suggested that all was not well with this picture.

Clash of the Cash Titans

There was a simple reason why the credit derivatives breakthrough took ...

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