[Homestead] The $55 trillion question - CDS explanation
bob ford
bobford79 at yahoo.com
Wed Oct 1 07:56:10 EDT 2008
This is the best simple language explanation of credit-default-swaps that I have read.
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The $55 trillion question
" CDS are no mere artist's fancy. In just over a decade these privately traded derivatives contracts ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they've played a critical role in the unfolding financial crisis. First, by ostensibly providing "insurance" on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble. "If CDS had been taken out of play, companies would've said, 'I can't get this [risk] off my books,'" says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. "If they couldn't keep passing the risk down the line, those guys would've been stopped in their tracks. The ultimate assurance for issuing all this stuff was, 'It's insured.'" "
http://money.cnn.com/2008/09/29/magazines/fortune/varchaver_derivatives.fortune/index.htm
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