Allowed swaps contracts to be made many times over
With no requirement to set adequate capital reserves aside, there was no inherent constraint to prevent companies from profiting by making swaps contracts many times over while ignoring the "notional" liabilities accumulating as they did so.
Immediately related elementsHow this works
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The Global Financial Crisis »The Global Financial Crisis
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Immediate triggers of the financial crisis? »Immediate triggers of the financial crisis?
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Pathology in the Credit Default Swaps market »Pathology in the Credit Default Swaps market
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Credit default swaps became divorced from underlying value »Credit default swaps became divorced from underlying value
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Absence of regulation meant swaps not supported by capital reserves »Absence of regulation meant swaps not supported by capital reserves
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Allowed swaps contracts to be made many times over
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