Credit Default Swaps are emerging now as one of the key culprits in our current economic crisis. Apparantly, the total amount of this credit derivative product is in the range of $60 trillion. Yes, TRILLION. To put that into perspective, that is almost 6 times the entire US Gross Domestic Product. Yet, this $60 trillion of "insurance" only covers about $5 trillion in corporate bonds.
More importantly, however, the world of Credit Default Swaps is completely unregulated since the Commodity Futures Modernization Act of 2000 intentionally barred regulation of these trades.
As Warren Buffet has been declaring for 6+ years now, these types of instruments should not exist without collateral behind them of which there is none for Credit Default Swaps. Basically, investment firms like Lehman Brothers are out of business because they gambled with CDSwaps and lost and now the dominos are beginning to fall in the rest of the worldwide economy.
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