A credit default swap (CDS) is nothing but a gamble between two people that a company or an individual, not necessarily connected with them. will get into financial trouble. Sears, for instance, sells stoves on long-term credit. Some purchasers might not be able to pay. So Sears finds someone else willing to pay the purchaser’s debt in case they fail to pay, that is default on their loan hence the term “credit default.” Continue reading
When all the debate about arcane securities has died down, it will then become even more apparent that this financial crisis is at heart a moral issue from start to finish. As Gillian Tett noted on Thursday in the //Financial Times//when “the banking crisis hit Japan a decade ago, bankers bowed to show their public remorse; this time, however, barely a single western banker has even said ‘sorry'”. John Gapper in the same issue commented that bankers “did many foolish – and in some case, unethical – things during the boom. But they did not force people to buy houses or take out mortgages; they mostly provided rope for borrowers to hang themselves.” In short, it is time that all of us bowed and said sorry. Sorry to our young people, sorry to our children, sorry to future generations because in our greed we all created this mess and in so doing we have left them a world worse than the one that we inherited.
Friday 3 October 2008
If you are like me, you have a real job that takes you away from the computer at times. I surfaced around lunch time from grading papers and was pleasantly surprised to see the market responding favorably to the house’s vote in favor of the bailout. Or is it called a rescue plan now? I went back to grading and stopped for afternoon tea to be shocked by the tumble that had occured since lunch. What to make of it all? Continue reading