Credit-Default Swaps Are Back En Vogue As Market ‘Confidence’ Returns … Is This Change You Can Believe In?
HuffPo: Credit-default swaps — the financial instrument that helped bring down AIG and played a key role in causing the biggest financial crisis since the 1930s mdash; are, a year after the fall of Lehman Brothers, back en vogue on Wall Street, Bloomberg reports. Instead of being viewed as tools of financial disaster, CDSs are said to be contributing to the credit market’s renewed confidence.
Here’s why, according to Bloomberg:
The cost to protect against a failure by New York-based Goldman Sachs Group Inc., Charlotte, North Carolina-based Bank of America Corp., and 12 of the other biggest derivatives dealers dropped 66 percent in the past six months, according to an index of swaps compiled by Credit Derivatives Research LLC. While the U.S. struggles with the slowest recovery since 1945, the market where investors protect themselves from default and speculate on corporate debt shows confidence is the highest since June 2008.
For those who need a reminder of just what CDSs are and how they became such a phenomenon, it’s worth reading (or re-reading) Matt Taibbi’s story “The Big Takeover” that was published in Rolling Stone last spring.
