Credit Default Swaps

Thursday, October 09, 2008 By Robert D. Novak “60 Minutes,” the popular CBS news program, normally doesn’t deal with global finance, but last Sunday (Oct. 5) its lead story tried to isolate the cause of the current global financial meltdown. It selected a financial derivative: credit default swaps. A credit default swap is nothing more than insurance that a bond transaction will be repaid. The problem is that this has developed into a massive market estimated in the United States by participants in the market itself at a staggering $60 trillion. Nobody denies the usefulness of credit default swaps. The problem is that this market is totally unregulated. The use of the word “swap” makes it impossible for federal regulation, which would take place if it were identified as insurance. The tone of the “60 Minutes” story was that... [read full story]