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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] The $55 trillion question - CDS explanation
  • Date: Wed, 1 Oct 2008 04:56:10 -0700 (PDT)

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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