The Economy, what you need to know next

[Ferd]

I suspect most of us have been taking crunch courses on the economy in the last few days.

terms like Sub Prime Mortgagas, Community Reinvestment Act, Glass Stegall and Graham-Leach-Bliley Act, Fannie Mae, Freddie Mac, Mortgage Backed Secruities are all terms that most had not even heard of before a month ago.

Now they are household words and we all know what they mean (or at least we better)


BUT there is a new term rising over the horizon that we better get an understanding of because if this economy really goes south, it will not be because of the above, it will be because of a little thing called a Credit Default Swap.


Basically it is an insurance policy offered to a company that holds a debt. If the debtor defaults, the insurance policy (Credit Default Swap) pays the lean holder.

The kicker is, CDSs are traded like commodities and nobody really knows if the person holding the CDC can actually pay the insurance benifit to a lean holder if a debtor defaults..... and now for the kick in the pants.... it is a 67 TRILLION DOLLAR MARKET.


http://www.time.com/time/business/ar...723152,00.html