The fast-growing business in the credit derivatives known as synthetic collateralised debt obligations almost came unstuck in May 2005. That was when investment banks and hedge funds found that supply and demand in some parts of the market were seriously out of balance.

These two groups realised they had been left with the riskiest exposures in synthetic CDOs. These instruments are a twist on traditional CDOs, which pool together bonds, loans or other kinds of debt instruments and sell notes that represent different levels of risk. Synthetic CDOs pool derivatives rather than actual debt.