” It is important to note that the CDS contract is not actually tied to a bond, but instead references it. For this reason, the bond involved in the transaction is called the “reference obligation.” “
This is should not be allowed.
**********************************
That is how the bankers insured their CDO’s on mortgage trusts 10-30X over... it is criminal... and we are all paying them off to this day on the miniscule losses (relatively speaking) on the “reference obligation”.
Don’t get me started, but it’s TOTAL KRAP!