Credit Default Swaps on Trial
Credit default swaps, once an esoteric product known only to a small number of sophisticated investors and specialized academics, are now widely blamed as one of the main causes of the financial crisis. That odious reputation is jeopardizing their survival, but to ban them would merely sow the seeds of the next financial bubble.
https://prosyn.org/xfaCZ7G
CHICAGO – The lawsuit filed by the US Securities and Exchange Commission against Goldman Sachs for securities fraud, charging the bank with misrepresenting the way a collateralized debt obligations (CDO) had been formed, has revived public disgust at credit default swaps (CDS), the instrument used to bet against these CDOs. Before the 2008 financial crisis, CDSs were an esoteric product, known only to a restricted number of sophisticated investors and specialized academics. Today, they are a household name, synonymous with unruly speculation, boundless greed, and, ultimately, systemic instability.