Credit Default
Swaps are simply
insurance on
lending, or
borrowing. I buy
insurance on my
car in case
something bad
happens, and I buy
insurance on bo
(
more)
Credit Default Swaps are simply insurance on lending, or borrowing. I buy insurance on my car in case something bad happens, and I buy insurance on borrowers I lend to in case the default. This is what it’s called “Credit Default Swap†-- I am swapping the risk of my lender defaulting on his loan (i.e. his credit).
CDS entered the financial public’s mind after the Great Recession of 2008. The Big Short talked about it, and how it affected many investment banks like Lehman Brothers, CitiBank, Bear Stearns, and particularly AIG. Ben Bernanke, Hank Paulson, Warren Buffett, and Tim Geithner have talked about this sort of “insurance on lending†at length.
I made this video for a 6th Grade Economics class who wanted to learn more about finance in a very simple, straightforward way. The class is learning about Capitalism, lending, borrowing, and basic economics. I think this sort of financial literacy is critical. Money isn’t money, money is freedom. It gives you the opportunity to do whatever ...
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