Credit Default Swaps

Credit Default Swaps (C.D.S.) and derivatives were two of the major causes of the recent world-wide melt down of the financial system. They both can be portrayed by Wall Street types who receive their million dollar bonuses as positive and necessary. In reality they have changed pension plans and other large investors from conservative organizations with fiduciary responsibility for managing other people's money into high stakes gamblers like one sees in Las Vegas. This has become gambling instead of investing. That is what happened to your 401K. Your retirement savings were part of what helped pay these outrageous bonuses to the Wall Street types.

Credit Default Swaps are what almost destroyed AIG in America and why the government had to come in with such large bailouts. They were popular with large financial organizations like Lehman Brothers, J.P. Morgan, and Goldman Sachs. I have been quite scornful of the American elected officials because they are allowing these gross abuses to continue. Neither derivatives nor C.D.S. have been re-regulated.

But if one steps back and takes a more global perspective, you see that although they caused horrible financial damage worldwide, they have not been regulated in London, Paris, Berlin, or Geneva either. Credit Default Swaps are now making the national debt of Greece even shakier than it was. The use of C.D.S. to gamble that Greece might end up going bankrupt has grown exponentially in the last few months. The big European banks like UBS and Credit Suisse in Switzerland, BNP Paribas and Societe Generale of France, and Germany's Deutsche Bank have been especially active with these Credit Default Swaps since they hold such large exposure to the Greek debt.

So the problem is not just with the greedy, rude, and obstructionist Republicans in Washington, D.C. The problem genuinely is worldwide now. Although this may make me feel a bit better as a prior Obama supporter, it shows that the problem we are dealing with is larger than just little old America.

The New York Times has published a good article on this subject which you may wish to read: http://www.nytimes.com/2010/02/25/business/global/25swaps.html?em

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