credit
default swaps---or
CDS are
insurance against default or other credit
event, enabling debt to be bought and sold more quickly. These derivatives are good for some
of their traders and do serve to provide “insurance” during expansionary
periods but don’t seem to help in a disastrous global economy. In fact, these financial
instruments
do seem to make the downward pull worse, becoming rather destructive on the
downside for the entire crew due to the massive interconnectivity across the
globe. Rumour has it some people bought these swaps in mortgage related
transactions and didn’t even know it. The seller of these instruments receives
a revenue stream from the buyer in exchange for a payout should a covered negative
credit event happen. Unlike other insurance, the buyer need not own the
underlying credit risk. These instruments were blamed for adding to or causing
the great economic storm of September, 2008, in which the cash was not
available to cover pay-outs.