RT Journal Article
SR Electronic
T1 Everything You Wanted to Know about Credit Default Swaps: <em>But Were Never Told</em>
JF The Journal of Structured Finance
FD Institutional Investor Journals
SP 20
OP 30
DO 10.3905/JSF.2009.15.2.020
VO 15
IS 2
A1 Peter J Wallison
YR 2009
UL https://pm-research.com/content/15/2/20.abstract
AB Credit default swaps (CDSs) have been identified in media accounts and by various commentators as sources of risk for the institutions that use them, as potential contributors to systemic risk, and as the underlying reason for the bailouts of Bear Stearns and AIG. These assessments are seriously wide of the mark.They seem to reflect a misunderstanding of how CDSs work and how they contribute to risk management by banks and other intermediaries. In addition, the vigorous market that currently exists for CDSs is a significant source of market-based judgments on the credit conditions of large numbers of companies—information that is not publicly available anywhere else. Although the CDS market can be improved, excessive restrictions on it would create considerably more risk than it would eliminate.TOPICS: Credit default swaps, options