Warren Buffett famously called them "weapons of mass destruction," and The Pope has damned the derivatives markets as a "ticking time bomb" warning of the “ethical void,"
"...which becomes more serious as these products are negotiated on the so-called markets with less regulation (over the counter) and are exposed more to the markets regulated by chance, if not by fraud, and thus take away vital life-lines and investments to the real economy.”
In a sweeping critique of global finance released by the Vatican on Thursday, that the Holy See singled out credit-default swaps for particular scorn.
“A ticking time bomb,” the Vatican called them.
“The market of CDS, in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world. The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view."
As Bloomberg's Sridhar Natarajan reports, the unusual rebuke - derivatives rarely reach the level of religious doctrine - is in keeping with Francis’s skeptical view of unbridled global capitalism.
The Holy See then put the sinning shadow bankers in his sights...
29. It is no longer possible to ignore certain phenomena in the world, such as the spreading of the collateral banking systems (Shadow banking system). These, although well understood within themselves, and also the types of intermediaries whose functioning does not immediately appear disapproved, in fact have led to the loss of control over the system on the part of various authorities of national securities. Hence, they have knowingly favored the use of the so-called creative financing in which the primary aim of the investment of the financial resources is above all speculative in character, if not predatory, and not a service to the actual economy. For instance, many agree that the existence of such “shadow” systems may be one of the contributing causes that advanced the development, and the global diffusion, of the recent economic-financial crisis started in the USA with subprime mortgages in the summer of 2007.
Then Pope Francis took a shot at offshore tax havens...
30... Today, more than the half of the commercial world is orchestrated by noteworthy persons that cut down their tax burden by moving the revenues from one site to another according to their convenience, transferring the profits into fiscal havens, and the costs into the countries of higher taxation. It appears clear that all these have removed decisive resources from the actual economy and contributed to the creation of economic systems founded on inequality. Furthermore,...