Editor's letter

The soul-searching continues after the unpleasant shock of the failure of correlation models in May. The extent of that contemplation could not have been clearer at our annual Congress held in New York in September. Speaker after speaker returned to the theme, complete with complex charts detailing the idiosyncratic effects of the autos downgrades on the credit indices. But in the end, it was Mark Adelson, director of structured finance research at Nomura Securities, who hit the nail on the head. "The real world is much more complicated than a model," which can be overwhelmed sometimes by plain old-fashioned "irrational behaviour" and the liquidity constraints of the demand and supply crunch, he said.

Another theme that has got everybody talking this month is the sudden and all-encompassing glare of regulatory scrutiny (see cover story, starting p. 30). From investment research to hedge funds, credit derivatives processing and the correct valuation of CDOs, the global watchdogs are turning their attention to the credit markets. The price the industry has to pay perhaps for such a sudden growth spurt. As we go to press this month, news is just in of the latest volumes recorded by Isda, with credit derivatives volume standing at a whopping $12.43 trillion at the end of the first half - up another 48% from year-end 2004 and 128% from this time last year.