Credit Default Swaps

[londonpie72]

Your videos are a life saver totally understand now

[londonpie72]

Your videos are a life as ver

[deniskatashkentskiy]

that was fucking awesome dude!!! i love your style! don't change anything! keep it this way bro!

[mavrick0ck]

thanks so much. this is such a clear tutorial on what a CDS is..

[Ash4800]

great video! subscribed!

[supralex1]

So the best thing to do is to work hard, save your money, and put it in safe. Or hope a bank and the government will assure it. Or, put your trust in shysters. Great choices.

[xcvsdxvsx]

"only the government would be objective enough" wtf, since when was the government objective, once representatives retire from politics where do they go? the corporate sector where they are rewarded for past compliance to private interest groups

[malthus101]

Excellent video, very clear now on what they are - I will watch your other videos! Thanks.

[djguy100]

Thanks for the upload

[DeeSee25]

Wow, this helps a lot. This makes a lot more sense now.

[libelula202]

"They aren't AAA, like the US government". Like the US government USED to be, now it's only AA.

[DeeSee25]

@libelula202 this was done in 2008, three years ago...

[ranj971]

Suscribed -- Thank you

[god4506]

California teachers or Michigan auto workers hmm,, I think he's being humorous :)

[CanadianSaudi1]

thank you khan

[44debil44]

lehman brother had aaa before his crash...so, i give a shit to triple a or whatever

[GrudonX]

@44debil44 Triple A is the highest credit rating, however that doesn't rule out the slim possibility of a default. America is currently triple A too, but they will default on some of their debts very soon. They really shouldn't have a triple A rating.

[frenchsaber]

"Let's say I'm a pension fund"

What the fuck is a pension fund?

First sentence and I'm already lost

[bokisa007]

corporation A = Greece!!

[PhilipNolan49]

Good job of explaining credit default swaps. That is very much appreciated. But it would be nice if you didn't allow your personal political beliefs to get in the way.

It is clear you disdain the free market, believe the government is the perfect solution to every problem, and think profits are wrong.

It is your video and you clearly have every right to express your opinions. I am just saying that it would be more effective to explain the concept without the moralizing.

[californiateaparty]

@PhilipNolan49 What personal political beliefs is he showing? Where does he indicate he disdains the free market, or believes the government is the perfect solution to every problem, or profits are wrong? Where is he moralizing? Not in this video. It sounds like your political beliefs are showing. The government is not to be trusted implicitly, but neither is the "free" market.

[treysparker]

@californiateaparty

Are you deaf or blind? He suggested that only the government would be an entity objective enough to give ratings and then says 'unfortunately they're not, they're private entities'

Thats absolutely against the free market. Somehow the uploader missed the fact that governments are corrupt.

[californiateaparty]

@treysparker What's deaf or blind got to do with anything? Stow that, please. What he says is not "absolutely against the free market." It's against absolute blind faith that the free market always doing what's best. We want accurate ratings. Can the gov't do that? Probably as well as Moody's. Can the gov't be corrupted? Certainly.

But surely you see that being paid for ratings has the potential for abuse and at least the appearance of impropriety?

[Mestilf22]

@PhilipNolan49 Noting problematic incentive structures is not equal to showing disdain for free markets. The "free market" for financial institutions has changed rapidly in the last decade. And there have been clear negative consequences to that. One being the financial crash of 2008 when ratings agency's weren't doing their jobs, the government wasn't prosecuting financial criminals, and bank CEO's were taking risks they knew wouldn't work out well but would help their pay in the short term.

[treysparker]

@PhilipNolan49

100% right, oh well. Ignorance is bliss i suppose lol.

[juliusreea]

whole art of wall street, fedguys, is to hide the the fraud behind their gibberish and complex derivatives. con artists thats it

[juujuuuujj]

This gives me an idea - send this video to your congressman :))

[juujuuuujj]

It's really an art to be able to simplify something complex. You've done a great job! And CDS is something everyone should know about.

[49fiori]

how do you hedge between stock and CDS by going long on both? What does that mean. E.g. Paulson recently bought $1B HPQ shares, but the stock went down, so he could've also played relative value long CDS - what does this mean? Thank you!

[RBaleog]

Financial terrorists should be treated just like other terrorists.

[turak0]

LOUSY video: it does not cover WHY any financial institution is allowed to insure ANYONE without having the collateral to pay up if and when the insurance comes due. The fact is what these fuckers did was ILLEGAL AND THEY KNEW IT.

If they had sold insurance under the regulations covering insurance companies: they would have been put in jail years ago. The fact is: the loophole which made credit defaults possible was railroaded through congress during Bush's term, and it was a SCAM.

[beatleman]

Moody's doesn't use the BB rating... or B+... or half the other ones up there... that's S&P or Fitch...

[whatrugonnadocrazy]

credit default swaps, lol. seriously this was the devil when it came to insuring CDO's lol with their so called AAA ratings

[idally89]

Good explanation. Yet, do you agree about what some market commentators argue that unless there is a strict control of these credit derivatives what happened few years ago in 2007 may happen again?

[cdltpx]

Read Michael Lewis book the big short it is staggering what occured CDO's are not the fault but rating agencies are.

[omgiheartpie]

@rohanhenkash what a mindless comment to spew on this video. Learn to spam faggot.

[theporksicle]

The crux of the matter is this 1% is not a sufficiently high ROI for anyone, even insurance companies. If you have $1 billion its much easier to put it in the bank or buy investment grade bonds and receive at least 3% or 4% a year on them than it is to find someone who needs a $1 billion loan insuring only to receive a 1% return.

Until someone solves this problem insurers will never put aside enough money.

[enkelin32]

@theporksicle That was only for an example. the actuall rates were probably much higher depending on the value or prospects of the underlying security

[affiliate30]

the problem with all this is that "you" can go to companies like AIG and gamble that companies like company A are going to go under, so that when they go under you will get paid by companies like AIG on your gamble, then you can "boycott" companies like company A so that they will go under and you will get paid by companies like AIG (this kind of "genius" stupidity war crushed the American market right around the time when you made this video) also AIG = "I can't believe is not insurance"

[MalettaK]

Thank you!

[EqualMoneyEqualLife]

Great vid - thanks

Demonstrates the necessity of an Equal Money system that considers what is Best for All in each moment - not just what benefits a few temporarily - Common Sense !

[tjohn1986]

@EqualMoneyEqualLife Umm hey sunshine, what happens when those with equal money spends it all unwisely?

[cameronvcope]

thanks for this tutorial !

I have started to do research into how the banking/financial system operates & as soon as I came across the point if CDS's I felt like I was missing something - because it made very little common sense !

What I am seeing though, is that these systems are not based on common sense and what is best for all but rather what makes money for specific parties for limited amounts of time - no self-responsibility, no concern for the impact on others ! WTF?!

[mikejadoti]

U.S. Gov't is about to default, so... you might want to go back and redub these videos and take out all the "they're almost as good as the gov't" stuff.

[Dominuce]

wow i am on way a wiz on finance but i can see how this can turn real uglt real fast witch it did

[MrLavinfx]

actually i was scare to learn about CDS but the way you explained it was so easy to understand, thanks a million.KEEP THEM COMING we are paying close attention

[WizzRacing]

The removed Glass\Steagall in 1998

In the nineteenth and early twentieth centuries, bankers and brokers were sometimes indistinguishable. Then, in the Great Depression after 1929, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act

[THEworldisbutaDREAM]

wow thanks this is helpful!

[yellowwitch1]

Thats great, thanks!

[quikesanjur]

in US they can use the money you pay for your pension to invest?!?!?!?!?! and if they lose the money you have being paying for nothing??? if its this way you are screwd... Im not sure, but I think in europe (or at least in spain) the only way of loosing your pension is with the apocalypse or something like that....

[notme222]

@quikesanjur Well, the idea of a pension is that you want to take out more money than you put in. That can't happen if the money is just stuffed in a box. There are rules to predict how it's managed but of course any investment has some risk.

It always seemed like a lousy idea to me, to be honest. "Hi, come work now and you'll get your money in 40 years." Uh, no, I'll take my money now thanks, and mange it myself.

[quikesanjur]

@notme222 Maybe I am mistaking with retire pension, which I though is for when you retire. It supposed to have nice interest (provided by the state), cause that money you save (or invest) is for your living when you wont be able to work (not for making fast money).

The think is that if you keep your money on your pocket it can end up worthing nothing (like happened in Argentina) or in a private bank, it can go bankrupt. The State its supposed not to go bankrupt.

[notme222]

@quikesanjur Yeah I was going to say that but ran out of room. :)

In the US, the word "pension" only refers to an employer's plan. Social Security (provided by the fed gov't) would never be called "pension" here. I don't know your country specifically but I do know that in some places a "pensioner" is anyone on a retirement account. That's not how people in the US would speak though.

And gov't plans of course have their own problems, but that's a whole other thing. :)

[quikesanjur]

@notme222 Im from Spain, so that means: I dont speak good english xD, and that I tend to read about economy these days xD.

I guess the word is "retirement account". In US, that is provided by your employer? or by the government? Here, as far as I know, part of your salary goes to the Social Security (mandatory), which will give you a pension when you retire. Additional you can hire a private retirement pension.But the thing, is that the state is more secure that a private company, apparently! xD

[notme222]

@quikesanjur We have lots of different levels:

Social Security: US government provided, funded via special tax, available to everyone @ 65. (And due to be under-funded in a few years.)

Pension: Provided by employers, sometimes a company, sometimes a state or local government. The money pool is managed by experts, following rules.

401k: Employer/Private co-op with special tax rules

IRA (Investment Retirement Account): Private savings with special tax rules.

Others too, plus your own svngs

[dodojardin]

Aren't Insurance companies supposed to obey very strict solvency rules? And by that I mean they have to create "technical provisions" in order to be able to honour their undertakings? I'm not sure everything relies on ratings given by unindependent, unimpartial rating agencies? I know that is not the case in France.

[arclord]

This was very very helpful !

[orginunknown]

EXCELLENT JOB!

this is how this stuff should be explained. dumbed without financial jargon thats meaningless to the layman. bravo.

[lazytj]

great introductory video, although, it would have been more beneficial if you also touched upon the use of CDS in credit risk management

[tonytone73]

lmao... "Pesion Fund. Me. Pension Fun. Pensioon... Fuundd."

[traceyrmj2]

what program do you use?

[traceyrmj2]

found out. it's paint. I'lll use GIMP

[farmboycarl]

11 minutes? Here, I'll save you 10 of them. A credit default swap is a bet that whatever it's written against will fail. Since 2001, 50 Trillion dollars worth of Credit Default Swaps were written against nearly every mortgage in America. Now ask youself, do you think the Wall Street men who invented these instruments (and bought them) might have an interest in seeing your home values fall? -Think about that the next time you notice banks are doing nothing to discourage strategic foreclosures.

[Freddycd15]

Best lessons ever!

[jscanlan22]

Great job! Since, now even Greenspan admits that, markets are not self regulating. Who should we look to to set rules and regulations to govern these financial insturments?

[08Marina08]

Thank you so much!!!! Tomorrow I am writing a test and I didn´t get the whole thing about Credit Default Swaps... but now, it´s clear!!! Thanks!!!

[luam82]

great job now give me something more about ifrs ias some hedge accounting

[ed1962]

THESE ARE SOOOOOOOOOOOOOOOO HELPFUL. completely eclipse my shithouse lecture slides/readers i'm used to working with!

[timtag27]

Great Job , The Government should Hire you , the best explanation about this practice , bar none.

[BlahBlahBlah55209]

One of the greatest videos on You Tube. This should be shown on all networks. I really mean it. I bet .00000001% of American really knows what happened with the Great Recession!! Heaven forbid anyone tells us!!

Thanks so much!!!

[BettyRox0890]

Thank you soooo much!!! I have a test tomorrow and this was the one thing I just could not get. I was so confused! (@,@)

[chubbychilli]

Sal....u are BRILLIANT! This was so clear. I totally understand CDS now. I have searched on the net for examples of what the heck they are...and you explained it so clearly here. Right...now onto the next video (I've watched about 5 today - they are addictive!)

[chena3]

good job

thanx

[metfan213]

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[bharati1986]

Brilliant stuff. had been trying to find reading material on this but kept getting consfused. this is so good! thanks!

[gate14zer]

do the banks only lend up to how much money they have in the vault in their basement??? clearly not even close!

[temanite98]

There is no justification for aig to set aside in assets what they have insured ....as they can borrow to pay out in event of default. I don't see this as being "shady". It is subject to some risk, but so is everything else.

[OntologicalQuandary]

Holy shit are you retarded?

The justification for collateral is the fact that the whole fucking economy just fucked itself over because of bullshit swaps like this.

God damn, with people like you alive it makes sense why the world is so fucked.

[autorancho]

aig got its AA rating based on its own assets, not what they can borrow....

;)

[rexyseth]

excellent video! AIG's business was really running on luck.

[beatilcoheadsmith]

I'm doing research for an author and have needed to learn the entire sphere of the financial lexicon from scratch. This video is the best explanation on CDS's BY FAR that I have seen

[MzProgressive]

Great Vid!

Reminds me of the Federal Deposit Insurance (FDIC) on savings deposits at your local bank. They insure WAY more in deposits than they could ever cover if there were a financial collapse.

[arisraz]

very helpful video.. help me finishing my term report. thank you ^_^

[MatteNoob]

Very good explanation, Sal. I now see where the systemic risk they talk so much come from.

I don't know if I think it is shady though. The one bit that is weird, is that it is the company itself that pays for the rating. One would think that the investor would have incentives to pay for a non partisan rating

Are there regulations for who can own a rating company? For instance, can an insurance company like AIG own their own rating company and be rated by them?

Are there rules for how to rate?

[Filmaker25]

What a real pyramid scheme! So basically what he's saying here is it is easy for AIG to get WAY, in over thier head!! When all the debt needs to be insured , it might not be, the hope from AIG's perspective is that nobody goes under and they won't have to dish out the money.

[MyRepresentativeOrg]

Re-writing History by changing the story from "Creative Home Mortgages with Unreal Interest Rates" to Corporate Bonds.  Fooling the masses

[hu599]

ok nice tehr

[high5flyer]

Yeah, AIG had it made! Isn't this what the US Government has done since they are technically AAA rated? What happens if the US loses an A? Could it be the same thing that happened to AIG.

[wadeccockrill]

That was awsome. Thanks for the explanation.

[drdevil1369]

Wonderful Explanation...The Best... :D.. Thanks so much

[Zientze]

thanks a ton

I found these videos today while writing on my masterthesis (about the mortgage crisis) and it made everything so clear!

[joneselius]

He is very good at communicating simple terms. This is so much easier than listening to an economist with a huge ego trying to confuse you. CNBC eat your heart out ^_^

[abhi1234jpr]

hi-Abhishek

[abhi1234jpr]

Hi,

Test

[thefragile900]

I impress chicks in my Finance class with the knowledge Sal has given me.

[vhas12]

CDS is originally a good hedge instrucment...but then they become the core cause of financial crisis

[SayNoToGMO]

Sending this to a bunch of folks... thank you for making the effort...

At least now I can scream intelligently at my representatives!!

[klard]

Why does he keep saying that the US government is a risk free investment. The US government has to borrow all its money and producing nothing to pay its loans back. The idea about Government of USA backing the currency is a fiction.

[snorkelferret]

US has never defaulted on a loan,though it has occasionally "inflated them away" Also what is backing the Gov is taxpayers money

[vhas12]

US Government just use another loan to cover her original loan

that's why she keeps on asking the Chinese government to buy her new bond

otherwise she doesn't have enough money to pay back her original loan

[petewhit]

The US government is considered a risk free investment because of their ability to tax and print money

[klard]

petewhit: Isn't inflation a risk? You get your dollars bavk but they might be worth only a fraction of the original investment value.

[petewhit]

Of course you risk inflation, but since they inflate the amount of dollars, the net present value of the amount the pay back will be substantially less

[futureeconomist]

The US Government has the power to do something that you and I can't: the ability to change its income. It can raise taxes in the case if no one wants to buy bonds. Or, it can cut spending. That's why it's a risk free investment. The only down side is inflation, but that's why you ought to be smart enough to get a good interest yield.

[sidney252]

thanks

[colonelburger]

Amazing clarification. Thank you very much for creating this.

I am so angry at those Insurance Companies!

[megsidara]

Outcry should be diredted towars moody's and the blind eye turned towards the too good to be true. Hello...regulators. Timmy G....Ride their ass like zoro....

[prosvjeta]

thank you very much.

now i understand why webster g. tarpley demands that derivatives and especially CDS are to be forbidden.

watch?v=7-dSrnmutaE

[hillclimbfreak]

thx man

great work

[GermBrit]

Great work on this video. You make everything so easy to understand.

[calilian07]

Thank you. Great work!

No wonder government keeps on bailing out AIG. This snowball effect is out of control. Is there anything we can do?

[inthebluescrossroad]

wow , how can scams like these operate at such a grand scale i still dont understand it. people keep buying into shit like this though , i only wonder what the next inflated bubble is next, US treasury bonds? thats what peter schiff says , anyone care to make a video?? msg me if you do plz!

[Prophetess7]

If you still don't understand it you probably need to check out Credit Default Swaps 2.

[Pinacovideo]

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Check my website: MaverickMoneyMakeRich(dot)com

[johnny1436]

excellent

[17Spartacus76]

Not a bad explanation, two points though

1 - The government has even less incentive to accurately rate debt than Moody's would. Such a task would be done by an unelected bureaucracy with little or no accountability. If people stopped trusting Moody's, no one would seek their ratings and they go out of business.

2 - The only reason why AIG insured so many CDO's was because of the assumption that housing prices would never go down and that they were the safest bets around.

[uturniaphobic]

Yes. There was a triple-A wolf in triple-A sheep's clothing. The rating agencies have no merit..duh

Don't let CEOs cop the plea: they never saw this coming. They're professionals who tried to milk a cow and get out of town quickly. "No documentation" wtf! I ain't payin' for this crud and neither are my kids!

thanks for the show I'd say you described this crime beautifully! garbage in, chaos from here on out =) BTW where's the TARP box? )

[EYAISTHITOSLISTIS]

only one day before Lehman Brother's bankrup bankrupted Moody's gave them the best:AAA insurance...shame on you

[lawforever]

This guy is great in teaching us these diffucult subject. Awesome!

[CP91311]

Sounds Like The Central Banking System.

[timmygravel]

WHO CARES

[ThatIsNotDeadWhich]

And the *really* big problem with CDSs isn't even that the insurance companies didn't just sell CDSs to you for debt you owned. They would sell CDSs to you for debt *other people* owned. Which is kinda like selling you fire insurance for your neighbour's house.

Since this might give you some - ah - fiery ideas, that's not allowed when you're doing normal insurance... but CDSs were completely unregulated. (Yes, Alan "Bubbles" Greenspan and Rob "Alcoa" Rubin, I'm looking at you.)

[mikemortgage1234]

Interesting....

[wrongnumber6]

thanks for making this so simple !

[ExcelIsFun]

Sal,

You are so amazing! Thanks for making it easy to understand!

--ExcelIsFun

[PieterOetDeSmeele]

Very Very good movie!

[juhapakkala]

Excellent. Very clear!

[aznobewan]

This is excellent. I have been reading about Credit Default Swaps since June and explain it to all my friends who actually care about the market and how it affects them. Now we can see why the FED has stepped in to slow down this domino effect. Looks like America and the rest of the world are in for a rude awakening :(

[utofbu]

really great stuff. quite clearly describing how the risk might snowball at any point.

[0PsycoDad0]

Excelent content made easy.

Keep on producing these vidz!

[RemiG2006]

Everybody knows that S&P as well Moody's were being paid by investment banks and other friends on Wall Street. And for me personally it was hilarious to hear that both companies have had a 'bug' in their computer models!

theregister. co. uk / 2008 / 05 / 21 / moodys_investigates_ratings

Btw. Very nice videos. Good job.

[khanacademy]

I'll have to ask my wife :) I think she'd prefer that I stick to recording videos.

[pongman]

So what did she say?! I'm most certain she wouldn't mind becoming First Lady. Tell her that America needs someone of high intelligence to run the country. With the near economic collapse of the financial markets wouldn't the repercussions be felt all the way to Google and You Tube? Advertising revenue would go down and eventually Google would have to shut down. You might have to find an alternative site or method of uploading videos. lol

[Ben1607]

@khanacademy -- Ive noticed that Mr. Kahn seems to have a very interesting relationship with "his wife". Every time he brings her up he is mentioning how she disapproves of something he is doing. I would suggest Mr. Kahn make his own descisions, especially if his wife is just projecting useless judgment onto him

[pongman]

Hey Sal! What are your chances of running for President in 2012? Or, at least becoming Secretary of the US Treasury?

[DanMan7997]

If Sal ran for president then he wouldn't have time to keep making videos... and I need ma videos! lol

[pongman]

Yeah I know. He could get his Vice-president to run the country while he's doing video. I mean it can't get any worse than it is now right?! What the heck, he could take a couple hours every day and do videos and let the country go on automatic pilot.