Credit default swap

A credit default swap (CDS) is a contract that makes the seller of the CDS responsible for compensating the buyer in the event of a loan default or other credit event. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, receives a specified payoff amount if the loan goes bad. CDS are used to shift credit risk from the buyer to the seller.

In the event of default, the buyer of the CDS gets money, usually the face value of the loan), and the seller of the CDS takes possession of the defaulted loan. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan. (A CDS unrelated to a loan is called "naked" CDSs). If there are more CDS contracts outstanding than bonds in existence, the industry has agreed to a procedure to hold a credit event auction; the payment received is usually substantially less than the face value of the loan. The European Parliament has approved a ban on naked CDSs, since 1 December 2011, but the ban only applies to the debt of sovereign nations.

Credit default swaps have existed since the early 1990s. Their use increased after 2003. By the end of 2007, the outstanding CDS amount was $62.2 trillion, falling to $26.3 trillion by mid-year 2010 but reportedly $25.5 trillion in early 2012.

One cause of the Recession of 2008 was that banks and insurance companies sold CDS without holding adequate reserves to protect against losses and without keeping track of the total amount of credit exposure represented by CDS contracts. As a result, the United States government bailed out the large banks and AIG, a very large insurance company.

Quotes

• "Give me control of a nation's money and I care not who makes the laws." -- Mayer Amschel Rothschild of the Rothschild family

• "The Rothschilds are the wonders of modern banking ... we see the descendants of Judah, after a persecution of two thousand years, peering above kings, rising higher than emperors, and holding a whole continent in the hollow of their hands. The Rothschilds govern a Christian world. Not a cabinet moves without their advice. They stretch their hand, with equal ease, from Petersburgh to Vienna, from Vienna to Paris, from Paris to London, from London to Washington. Baron Rothschild, the head of the house, is the true king of Judah, the prince of the captivity, the Messiah so long looked for by this extraordinary people. He holds the keys of peace or war, blessing or cursing. ... They are the brokers and counselors of the kings of Europe and of the republican chiefs of America. What more can they desire?"

• "This multinational banking family is a byword for wealth, power – and discretion... The Rothschild name has become synonymous with money and power to a degree that perhaps no other family has ever matched."

• "As we have seen, however, wars tended to hit the price of existing bonds by increasing the risk that a debtor state would fail to meet its interest payments in the event of defeat and losses of territory. By the middle of the 19th century, the Rothschilds had evolved from traders into fund managers, carefully tending to their own vast portfolio of government bonds. Now having made their money, they stood to lose more than they gained from conflict. The Rothschilds had decided the outcome of the Napoleonic Wars by putting their financial weight behind Britain. Now they would sit on the sidelines.

• "The one aim of these is world control by the creation of inextinguishable debt." - Henry Ford

• "Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants and debt is the money of slaves." -- Traditional

See Also

• Insurance: AIG
• American economic history
• Essay:Invest in tangibles - Economic preparedness
• Inflation versus Interest rates / Rate of return-Expected return
• Self-directed IRA and IRA, 401(k), Roth IRA, 403(b), Retirement, Social security

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• Banksters: Quantitative easing of the Federal Reserve Bank, MF Global, Goldman Sachs, Rothschild family, Bernie Madoff

• National debt: Debt Ceiling-Deficit spending and the Federal Reserve System's Ponzi scheme of Quantitative easing-Debt monetization devaluation of Fiat currency through Money supply-Treasury bills bought mostly by China and Japan

• Globalization, Globalism, International Monetary Fund, World Bank

• John Maynard Keynes liberal Keynesian economics and Fabian Socialist influence on Barack Obama

• Big Government: Liberal ObamaCare-Common Core-Social Security Welfare state leads to Nanny state, leads to Gun control, Militarization of police, Asset forfeiture and Domestic mass surveillance of law-abiding citizens via the Police state: Globalist-United Nations-Statist-Socialist-National Socialist-Communist

Contrast with:

• Ludwig von Mises' conservative libertarian Austrian economics and Fiscal conservatism -Capitalist Conservative economic policies of Ron Paul

• Gold standard and precious metals

• Invest in tangibles for Economic preparedness

• Limited government implies: Conservative values/Traditional values - Modern conservatism - Modern preparedness are the original American Patriot Founding Fathers' values

• Modern preparedness: "if times get tough, or even if then don't", Debt is financial cancer, Tax is theft, Renewable energy, Financial security, You are in control of your life

• • Invest in tangibles - Rural farm land, Tools, Food storage, Precious Metals, Copper-jacketed lead and Firearms

• • Agriculture-Permaculture: Growing your own food, Food and water storage