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The prevalence of mark-to-market accounting, credit-default swaps, and other tools of modern finance allow risk to be repriced quickly as conditions change. This rapid repricing, paradoxically, tends to aggravate short-term instability. But drawing attention to problems as they emerge forces managers to restructure troubled portfolios or entities before dangers can reach explosive proportions and threaten a broad-based implosion of credit quality.
Source: “Putting Today’s Credit Market Risks In Perspective,” a report published by Standard & Poor’s Ratings Services.
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