Credit Default Swaps: Why Washington Ignored Our Warning
By Martin Hutchinson, Contributing Editor, Money Morning
Three years ago, I told you that Wall Street's newest invention - credit default swaps - would cause a major financial crash.
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor - which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries - and not just banks - defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.
If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.
To continue reading, please click here ...
By Martin Hutchinson, Contributing Editor, Money Morning
Three years ago, I told you that Wall Street's newest invention - credit default swaps - would cause a major financial crash.
Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor - which is why I also warned that credit default swaps should be banned.
Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries - and not just banks - defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.
Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.
If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.
To continue reading, please click here ...
No comments:
Post a Comment