Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.”     Thomas Sowell

July 17, 2008

Worth 1000 Words — Or 381 Words After Inflation

by Brad Warbiany

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?

Worth a thousand words

Hat Tip: Marginal Revolution

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1 Comment

  1. 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

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