At Delivering Alpha, Paul Singer Gives Historic Derivatives Warning… Again

For Paul Singer, the eerie feeling of knowing how the future is likely to unfold and not having his warnings listened to must be maddening. But it is also a feeling that has a historical precedent. In 2007 Singer and others officially warned central bankers about logical impending bank derivatives doom, but their accurate warnings were treated as if they were coming “from ignorant children,” he said Tuesday at the Institutional Investor / CNBC Delivering Alpha conference in New York City.

As history illustrates, the central bank elite ignored market practitioner advice and dismissed the logical, market-based explanation Singer and fellow hedge fund luminary Jim Chanos had laid out. What resulted was the financial crisis of 2008 – driven by derivatives, by far the largest negative financial impact felt during the crisis. Now Singer is back with yet another derivatives warning that has only grown in magnitude. Will the US Federal Reserve, charged in part with regulating noncleared bank derivatives, again ignore credible warnings?

Paul Singer and Jim Chanos accurately predicted the 2008 derivatives crisis along with Hank Paulson, but their warnings were ignored, “they didn’t listen”

In 2007 Singer, founder of the now $27 billion Elliott Management and one of the more respected economic voices among hedge fund managers, gave a derivatives warning to thecentral banking elite. At the G7 meeting in Europe, he and fellow hedge fund manager Jim Chanos were granted an audience with the central bank elite that included then-New York Fed President and soon to be US Treasury Secretary Timothy Geithner. The pair accurately warned of the derivatives catastrophe that was about to befall society to multiple central bank, economists and fellow market practitioners.