Credit Default Swaps explained clearly in five minutes

BBC Newsnight feature by Alex Ritson on Credit Default Swaps - until recently a little-known financial product that Lehmans Brothers, AIG and the Icelandic banks were up to their necks in. Could this be the black hole at the centre of the financial crisis?

Category:

News & Politics

Tags:

• credit default swaps
• bbc
• newsnight
• Alex Ritson
• Emily Maitlis

[spiderwebb33]

damn it feels good to be a gangster... oops i meant banker

[spirish57]

Cr. Default Swaps is like the bank robbing Peter to pay Paul, but the bank forgot to pay Paul. Must be nice to generate funds with nothing down. Only in America!

[jal00n]

@virginiatechfanx Yes, but you can also buy a CDS for a company or loan that you have no stake in. So essentially, people (including bankers) were making bets that certain mortgage loans and such would fail. That's why they started offering those loans to people who for sure couldn't pay them. The banks would make more money if borrower defaulted than if they paid.

[virginiatechfanx]

so let me get this right i get an iou from a company right and i don't want to lose that money ok so i get a cds to protect that money which is basically insurance on the iou so if the company goes under or something then the cds basically gives me the money i lost?

[whatrugonnadocrazy]

@spirish57 trust me, most people in the bankers position would choose to let themselves profit from this as oppose to lose all your money because these people can't make their payments. right or wrong?

[whatrugonnadocrazy]

@spirish57 well you have to look at both sides. people are trying to buy houses without actually having money to do so. thus the bankers actually helped these people get homes. however, it was a failing strategy cause we all knew the people would default on their payments. the bankers were just looking out for themselves by creating such strategies. the question is, we know how it started, but once it did, what to do, and who is it right for? the bankers or the lower class people?

[Chief6569]

@spirish57 yeah cuz only american banks are using them..... 

[winstonchurchil1945]

this is intresting, i sell options once a month and collect a premium for the risk obligation of a index falling, basically i insure investors against there losses after 20% fall, cds sound almost the same but different markets....

[AbuJaffer24]

@spirish57 This video is about the United Kingdom... so it's not "Only in America."

Idiotic comments that have obviously not watched the video making up the majority of comments? Only on YouTube!

[martin231181]

@spirish57 And Europe and the rest of the world

[58robbo]

instead of adding another activity to the ban list, how about removing the liability of the taxpayer? i have absolutely no objection to any form of gambling. what i object to is the gambler coming to the taxpayer because the bookmaker can't pay