Tim Weithers at the University of Chicago, writing for the Atlanta Fed:

The probability of systemic risk in the banking industry attributable to credit derivatives stemming from macroeconomic events is probably much lower than in the past – due to the dissemination of default risk among a broader investor base. This may not be true, though, of the insurance industry (“insurance companies account for only 1% of protection buyers versus 20% of protection sellers.”). The distribution of risk has its downside, though, in terms of control. Some may recall the days in which the Fed targeted the money supply. Because banks were so clever at creating money substitutes... eventually the Fed simply gave up attempting to control or target the monetary aggregates. One wonders whether there is an analogue at work with the control of credit risk (through credit derivatives).

The whole thing is worth a read.

Also, conflicting views on the European emissions trading scheme: a couple of environmental economists says it's been a success. Alea is not so sure, pointing to the embarrassing price crash from over €30 to under €0.50 since the start of 2006.