The Mythology Of Credit Default Swaps

Here we have another interesting reading from Charles Davì:

Pundits from all corners have been chiming in on the debate over derivatives. And much like the discourse that has dominated the rest of human history, reason, temperance, and facts play no role in the debate. Rather, the spectacular, outrage, and irrational blame have been the big winners lately. As a consequence, credit default swaps have been singled out as particularly dangerous to the financial system. Why credit default swaps have been targeted as opposed to other derivatives is not entirely clear to me, although I do have some theories. In this article I debunk many of the common myths about credit default swaps that are circulating in the popular press.

Charles continues the article outlining some features he calls “myths”:

  • The CDS Market Is Not The Largest Thing Known To Humanity
  • Credit Default Swaps Do Not Facilitate “Gambling”
  • The Credit Default Swap Market Is Not An Insurance Market
  • Continue reading the article of Charles here, it really worth your time.