But for now, as Duffie's colleague at Stanford, economist
Matthew Jackson told me,“We're still a little bit in the stone age of mapping out financial networks.
In fact, said Duffie, about regulators'
and politicians' enthusiasm for the clearing mandate,“It wasn't so much that people were confident that it was going to reduce risk.
When I put the argument
that CCPs will not engage in risky behavior in front of Franklin Allen, who is more skeptical of their contribution to safety than Duffie, he pushed back.
As Stanford professor of finance and derivative expert Darrell Duffie said to me, mimicking the mindset of bankers in the run-up to
Lehman's demise,“Gosh, if Lehman failed, who else connected to Lehman might fail?
Duffie doesn't like that metaphor(“well that's not well informed
mathematically … because of netting”), and he points out that the failure of one big node is not necessarily worse than if many small nodes fail.