Obviously, this market is still too new to have been tested in a widespread credit down-cycle. But so far, so good. The markets for more traditional derivatives, such as interest rate swaps and foreign exchange forwards and swaps, grew rapidly over the past several years.
Financial institutions had assumed too much risk, especially related to the housing market, through mortgage lending standards that were far too lax and contributed to substantial overborrowing. Repeating a familiar pattern, the “madness of crowds” had contributed to a bubble, in which investors and households expected rapid appreciation in house prices.