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$45.5 Trillion Credit Default Swap Market is the Next Shoe to Drop? - New York Times
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Posted by ian 2 years 9 days ago (nytimes.com). Views: 654
Tags: wall street housing bubble |
| Related Tags: finance stocks economics business video forbes bailout peter schiff |
Few Americans have heard of credit default swaps, arcane financial instruments (derivatives) invented by Wall Street about a decade ago. But if the economy keeps slowing, credit default swaps, like subprime mortgages, may become a household term.
Credit default swaps form a large but obscure market that will be put to its first big test as a looming economic downturn strains companies’ finances. Like a homeowner’s policy that insures against a flood or fire, these instruments are intended to cover losses to banks and bondholders when companies fail to pay their debts.
The market for these securities is enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market.
No one knows how troubled the credit swaps market is, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity.
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ian said |
| 2 years 9 days ago |
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ian said |
| 2 years 9 days ago |
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