Posted on 09/23/2008 6:42:35 PM PDT by politicket
-—”This credit insurance is roughly what’s called Credit Default Swaps.”
So are you saying the MBS’s that AIG held are “Credit Default Swaps?”
What makes it a “Swap?” What is being swapped? And by whom?
Are people swapping the obligation to pay if a creditor (eg. mortgagee) defaults?
thanks in advance!...
AIG -insured- the MBS's holders against credit risk on the MBS paper they held. This particular kind of insurance is called a Credit Default Swap.
What gets swapped with a Credit Default Swap is the credit risk.
Goldman or whomever pays AIG a monthly income, like your monthly premium, and in turn, if the MBS paper Goldman holds goes bad, AIG pays (if they can ;) Goldman the big insurance payout.
Buy stock in Goldman Sachs if that rescue plan goes down (as Warren Buffet, always early to the best parties, just did yesterday.)
Thanks. I’m a slow learner but your post 57 helped me to understand the situation much better. As a trained musician, I know that often I throw around musical lingo which to me is second nature, but to others is akin to Greek.
That’s what I find in some of the investment analysis columns- lots of economic and financial lingo that people who write those columns use every single day so they have no concept that the lingo is Greek to those who are not immersed in that field.
I need the “Economics for Dummies” version. Your analogy regarding the Cat 5 hurricane turned the light on in my feeble brain.
I’ve always said that accounting and finance is a black art - witchcraft, potions, and other poisonous concoctions. Obfuscation, abstraction, and 20 degrees of separation will get any P&L or balance sheet to where the executives want it to go - regardless of reality.
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