Key Words: Pope warns of ‘a ticking time bomb’ whose explosion would devastate market

Derivatives are ‘a ticking time bomb ready sooner or later to explode, poisoning the health of the markets.’

That’s just a snippet from the warning Pope Francis, long a vocal critic of unchecked global capitalism, sounded on Thursday via a statement released by the Vatican.

“The market of CDS, in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world,” the document explained. “The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view.”

The proliferation of unregulated derivatives — complex products that derive their value from an underlying asset or group of assets — is to blame for nearly blowing up the global financial system a decade ago.

The pope apparently believes the powers-that-be haven’t learned their lesson.

The financial crisis “might have provided the occasion to develop a new economy, more attentive to ethical principles, and a new regulation of financial activities that would neutralise predatory and speculative tendencies,” the statement said, adding that instead Wall Street has returned to “the heights of myopic egoism.”

The Vatican urged increased regulation of financial products and also called for universities to better educate the next generation of business leaders “as a fundamental and not merely supplementary element of their curricula of studies.”

Of course, the Vatican isn’t above reproach when it comes financial scheming. Earlier this year, prosecutors indicted a former president of the Vatican bank and his lawyer for embezzlement and money laundering. The charges were the latest in a long line of efforts aimed at cleaning up a scandal-ridden institution.

In 2010, Pope Benedict XVI in 2010 set up a financial watchdog to ensure the bank complied with more rigorous international standards on financial crimes, triggering a series of reforms that has continued under Pope Francis.

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