[rsobin]

We’ve heard so often that the swaps we a zero sum game. I guess when the economy was doing well there we some winners and losers but it was mostly true. When the real estate bubble started to break it became real clear real fast that the CDS market ,instead of insulating a firm ,essentially interconnected to each others losses. Instead of the system acting like a cable with multiple strands it was more like a chain where one bad link could cause total failure.

[the invisib1e hand]

Enough leverage can turn a loss on a single trade into multiple bankruptcies.

[dennisw]

We’ve heard so often that the swaps we a zero sum game. I guess when the economy was doing well there we some winners and losers but it was mostly true. When the real estate bubble started to break it became real clear real fast that the CDS market ,instead of insulating a firm ,essentially interconnected to each others losses. Instead of the system acting like a cable with multiple strands it was more like a chain where one bad link could cause total failure.

CDS were used to insure the bundled mortgages which are more accurately known as collateralized mortgage obligations (CDOs)
These CDS were based on the assumption that asset prices (real estate) would keep rising
This assumption was always a convenient fiction, a convenient lie actually, but it helped make Wall St hot shots billions in bonuses

Would you lie to yourself and others if it meant you made 5 or 10 million a year? If those others you lied to were Wall St asset shufflers just like you? I would be tempted