The explosive growth in the collateralised debt obligation (CDO) market has certainly given bankers plenty of work to do. But it is less clear whether investors have really benefited. The CDO market, in which risks are pooled, repacked and sold on, has been running at full tilt for the past year and credit derivatives had become the preferred way of transferring risk, rather than the underlying assets.

Bankers patted themselves on the back for creating a market that released risk-weighted capital by ridding themselves of risk on pools of exposures, while investors earned equity-type returns against a backdrop of low interest rates and weak stock markets.