“There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary to public interest. This strange doctrine is not supported by statute or common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped, or turned back.” Robert A. Heinlein, Life Line
A credit-default swap is best described as insurance against a debtor defaulting on their debt. If you’re holding someone’s paper, and you are concerned of a risk of default, you hedge that risk using a CDS with someone to ensure that you don’t encounter overwhelming losses.
So what does it mean when the chart of CDS contracts on US Treasury bonds, the worlds main “risk-free” debt, looks like this?
Hat Tip: Marginal Revolution
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I say it means that an educated person would want a chart covering more than 3 months before making financial decisions.
Comment by Thane Eichenauer — July 21, 2008 @ 2:14 pm