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. 

Part 1:

 

Part 2:

 

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. 

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