Almost two years into the credit crisis, the markets for securitised loans are still frozen. That does not mean the “rocket scientists” who made ultra-complex instruments have found nothing to do. Indeed, regulators will need to be very careful to make sure that some of their latest innovations are not rather dangerous.

Barclays Capital is pushing “smart securitisation” – spinning old legacy assets into securities that can be rated by agencies. Meanwhile, Goldman Sachs is devising insurance contracts against legacy assets – a private alternative to the asset protection schemes being used by governments around the world to stabilise bank balance sheets.

The BarCap scheme looks like a straight regulatory dodge. A key purpose of the move seems to be to allow institutions to reduce the total amount of capital that they need to hold against assets, even though the sum of the risks that such securities pose may be unchanged.

As they redesign the regulatory system, governments must make sure that the capital required for a given amount of risk is the same, whether risk comes from securitised or raw assets.

The Goldman Sachs scheme might well work: if institutions outside the banks are willing and able to bear such risks, this would be a rather neat way to effectively draw their capital inside the banking system.

But regulators must ensure there really is enough capital set aside to back any policies that are written, otherwise this scheme will only hide risk within the system, rather than reducing it.

Governments must also check that such insurance contracts are not really being written by their own treasuries. If too-big-to-fail banks were to take fees for writing such insurance contracts, they would, in effect, be trading off the safety afforded them by their state guarantees.

Regulators, however, must not stop at making sure that new developments in the quants’ art are not black magic. They must make securitisation work again. As long as securitisation is used to spread, not hide, risk, it is a useful way to channel funds from savers to borrowers.

Authorities must make sure that loan originators have enough “skin in the game”; the people organising credit lines must have an interest in borrowers repaying loans. Investors will not return to these products until they know they can trust the people who are selling them.