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I thought they were the big boys, and how can the derivatives be worth several times more than the bonds themselves?

Suppose I buy insurance on the full value of your house from Insurance company A. Then I buy insurance on your house from Insurance Company B. If your house burns down, then I make double the value of your house.

But doing this will put me in jail, because it creates an incentive to burn down your house.

It's a similar deal with CDS's. they created a financial incentive to burn down our economy.

66 posted on 09/27/2008 4:17:44 PM PDT by PapaBear3625 ("In a time of universal deceit, telling the truth is a revolutionary act." -- George Orwell)

It's a similar deal with CDS's.

So you buy a CDS on some IBM debt. How do you burn down the house of IBM?

67 posted on 09/27/2008 4:39:59 PM PDT by Toddsterpatriot (Let me apologize to begin with, let me apologize for what I'm about to say....)