Credit Default Swaps


I was reading the Article in Wikipedia about Credit Default Swaps. As always Wikipedia offers great information mostly not biased. This quote I particularly find interesting, from the article:

Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase[7][8][9]. They were designed to shift the risk of default to a third-party, and were therefore less punitive in terms of regulatory capital.[10]

Credit Default Swaps became largely exempt from regulation by the SEC and the CFTC with the Commodity Futures Modernization Act of 2000 , which was also responsible for the Enron loophole. President Clinton signed the bill into Public Law (106-554) on December 21, 2000.

And this is also an interesting Tidbit. Actually this whole article is very interesting. The Systemic Risk of a CDS is especially big, because it still is a private contract!

So here comes the joint Press Release of

The Role of the Federal Reserve in Preserving Financial and Monetary
Stability – Joint Statement by the Department of the Treasury and the Federal
Reserve

regarding “Sytemic Risk” and more. Also note in point two

not to allocate credit to narrowly-defined sectors or classes of borrowers.

And here come the statements from Treasury Secretary Timothy Geithner and Chairman Ben S. Bernanke.

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