Credit Default Swaps: possible cause for the crisis.
This post is somewhat of a continuation of my previous post about the bailout. I found a good video talking about CDS( credit default swaps) and what went wrong that caused the massive financial crisis.
So its not that Credit Default Swaps are worst thing in the world, It is that these over the counter (OTC) derivatives are not regulated at all so they pose a greater risk to both parties. As seen in the video, Warren Buffet called these CDS's financial weapons of mass destruction. And that is exactly what they did; they created havoc in the financial world through a tangling web of one person insuring another and someone else who had a AAA rating getting BBB rating which made another contract not work etc.