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.
Immediately related elementsHow this works
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The Global Financial Crisis »The Global Financial Crisis
Immediate triggers of the financial crisis? »Immediate triggers of the financial crisis?
Pathology in the Credit Default Swaps market »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 »Absence of regulation meant swaps not supported by capital reserves
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