What can we say?
We are experiencing the most severe financial crisis since 1929. It hurts. There appears to be no relief in site. What began with mortgage defaults has now spread to the derivative markets.
You will hear the term “credit default swaps” by the hour as this mess deepens and worsens. What are credit default swaps?
A credit default swap (CDS) is the most common type of derivative. A credit default swap is similar to an insurance contract protecting the owner against certain financial risks. Are you confused? These types of derivative are very complicated and not even totally understood by those who create them and profit from them. Of course right now these derivatives are failing and no one is profiting. And because of the volume of these derivatives is the reason our banking system and financial institutions are falling apart.
