[ThePythonicCow]

A graph I found, showing the recent rise in CDS's:

[RochesterFan]

First, I appreciate your comments. This discussion has been helpful for me to refine my thoughts on this problem.

I don't doubt your graph but the information is incomplete without knowing what assets they back. Lenders get CDSs when, for example, a company borrows money to build a new plant or to build an expensive instrument for a customer. That paper is not nearly so toxic as the mortgages from the housing bubble that we have been discussing. To better understand the situation, we need an accompanying plot of CDS value as a function of independently estimated risk. I have not encountered such a plot, have you?