Absence of regulation meant swaps not supported by capital reserves
The absence of regulation meant that, unlike a traditional insurance contract, there was no regulatory requirement to have adequate capital reserves to pay back the liabilities embodied in the credit default swap.
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
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Absence of capital set aside sucked companies in »Absence of capital set aside sucked companies in
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Allowed swaps contracts to be made many times over »Allowed swaps contracts to be made many times over
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