Wednesday, 30 August 2006

Fun with lawyers for all the family

An interesting article in the FT on the standardisation of documentation for synthetic CDOs raises an interesting point. Whenever ISDA has standardised documentation before, the article claims, extra liquidity has resulted. Leaving aside the occasions when it took more than one stab to get the docs right -- the issues over restructuring and what a contingent obligation is exactly spring to mind -- it seems like that the FT is right on this occasion. So given how much the market makes on a new instrument, shouldn't the banks be falling over themselves to pay for more ISDA lawyers? It does at least appear that this is one case where everyone spending a pound brings most people much more than a pound back.

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