As I work on the Financial Crisis presentation for tomorrow, I thought I would include a little primer here on CDS or Credit Default Swaps, which is why AIG, for one, needed a bailout. Sorry but I am late posting this!

A couple of VERY INTERESTING graphs from an article in the New York Times on March 23rd, which now seems even MORE Prophetic!!!  The article's headline is "What Created This Monster?" and was mostly about Bear Stearns, of course!

OH - By the Way - the New York Times is now accessible again from China (only three days off!  Interesting - now Dec. 22).

So here is a graph of the increase in Credit Default Swaps:

     

Well, I am not sure only the critics now think that the market was too unregulated, unless one claims Alan Greenspan to be a critic (which he wasn't at the time). 

Sorry for the next LONG graphic - straight from the New York Times article linked above.  Notice PNC Bank - they were given money by Henry Paulson, Secretary of the Treasury, to buy National City Bank because IT was in trouble!!  Wait - we didn't see this coming?!?

                           
    And I wonder why Citigroup needed  a SECOND BAILOUT!!!

So Credit Default Swaps were meant to spread the risk, but instead they spread the defaults!!!

AIG (see earlier post) became embroiled in ONLY this aspect of the Financial Crisis - and it brought them down!!
Ambac, MBIA and the other rating agency ALSO became involved in these and here was a conflict of interest!!  hmmm ...