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A simple question

CDS stands for "credit default swap". It is a contract where a buyer makes periodic payments to a seller in consideration of the seller making good any loss on the possible default under a loan made by the buyer to a third party.

A CDS resembles an insurance policy. However, there is no requirement that the seller holds assets to enable it to meet its obligation under the contract. Clearly, this has been a godsend for speculating banks and brokers over the last few decades since deregulation by Congress allowed this kind of behavior.

Credit default swaps are the most widely traded credit derivative product. The Bank for International Settlements reported the outstanding credit default swaps to be $42.6 trillion in June 2007.

A large part of this $42.6 trillion is in loans that have no underlying value. It is money siphoned off by crooks, cronies and collaborators. Do you really think a few hundred billion dollar bailout by the FED and Congress can avert the final reckoning?

Answers

CUWu answered a question in Economics.
957 points

CUWu answered one year ago …

I guess it really depends on how much of that $42.6 trillion isn't:

1. Backed by real assets
2. Held by firms that have no hope of being able to keep up payments

Let's assume it's 10% (it could be a helluva lot more, I just don't know enough about it). That means $4.26 trillion in bad debt that could come due. So no, the government won't be able to carry this alone. It's going to take a concerted effort on the part of the global financial community -- a concerted effort like we've never seen before -- to get us all out of this mess.

It's a sad thing, but the stability of the United States is something you can't put a price tag on. If we do poorly, so will everyone else in this world that relies on our dollars, consumer markets, etc.

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alanj answered a question in Economics.
2082 points

alanj answered one year ago …

The simple answer is what we are undergoing right now is a major correction. After it shakes out and then stabilizes it will resume on its long term upward trend. Pull up a price chart for the DOW over the last 100 years and you will see an upward trend with corrections along the way. But it eventually always goes up and higher then it did before. And it will this time too.

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