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Politics : Formerly About Advanced Micro Devices

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To: Road Walker who wrote (425570)	10/13/2008 3:30:06 PM
From: bentway	2 Recommendations Read Replies (2) of 1574711

My analogy of credit default swaps was flawed. Here's a better one: I'm a banker. I have $100 to loan. I loan or create a credit instrument based on my $100 and sell it. Then, I pay $10 for CDS-insurance on the $100. Since my $100 is now fully secured against default, I loan or create a credit instrument based on my $100 and sell it, AGAIN, buying another CDS to insure it. Wash, rinse, repeat. You end up with $62 trillion of CDS's securing over $500 trillion of what the buyers thought were solid derivative investments, but which actually seems to be smoke.

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