We've discussed the possibility of a systemic meltdown in credit derivatives. The issue is clouded by some uncertainty about just who owns all this stuff [1]. We can all agree that investment banks are big buyers and sellers. Fitch Ratings' latest credit derivatives survey found that credit derivatives trading hit nearly $50 trillion in 2006, more than double the volume in 2005. Banks and broker-dealers held about $24.6 trillion in derivatives as of the end of 2006, again more than double their 2005 year-end holdings. At the same time, nearly 40 percent of credit derivatives were rated junk or unrated. That's more than double the percentage in 2003. Credit derivatives include credit default swaps and collateralized debt obligations (both cash and synthetic). Interesting stuff.

For more:
- here's a Financial News Online article [2]