comments

Credit default swaps became divorced from underlying value

Key difference between a real insurance policy and a credit default swap contract is that neither party needs to own the object of the insurance; multiple non-owners may simply be paying a fee to speculate on a particular outcome.

RELATED ARTICLESExplain
⌅
The Global Financial Crisis
⌃
Immediate triggers of the financial crisis?
⌃
Pathology in the Credit Default Swaps market
■
Credit default swaps became divorced from underlying value
↳
Absence of regulation meant swaps not supported by capital reserves
□
CDS market complex, unregulated and secretive
□
Complex financial instruments that few understood
□
Hedging/Netting contracts created web of vulnerability
□
Monoline insurers struggling to meet guarantees
□
Reckless securitisation on top of reckless lending
□
Resources of regulators limited in comparsion to market players
□
Speculative swaps grew to dwarf real insurance swaps
□
Vast scale of rewards encouraged complicity with system
□
Graph of this discussion
Enter the title of your article


Enter a short (max 500 characters) summation of your article
Enter the main body of your article
Lock
+Comments (0)
+Citations (0)
+About
Enter comment

Select article text to quote
welcome text

First name   Last name 

Email

Skip