[Perdogg]

I am still confused about CDS. Is this same concept, let’s say, a collection agency buying a debt at a discount to go after the debtor?

[i_dont_chat]

Yeah, and come to find out — there is nothing to go after. . . . .

Bad swap — and they are crying. They want to undue the swap.

[palmer]

Read this
http://www.financialsense.com/fsu/editorials/amerman/2008/0917.html

[afortiori]

It's a financial contract that pays off if there is a default. Although mortgage holders might use it to hedge their position in case of default, some may buy them simply speculate. From Wikipedia:

A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and is not generally considered insurance for regulatory purposes.