Credit Default Swaps Are Not Villains

Credit Default Swaps (CDS) are back from perdition of 2009 and that’s not bad. Except when politicians in Washington are looking for scapegoats again.

They’re an insurance policy in the event an issuer of a bond or note defaults. They thus come in handy in volatile markets. Credit Default Swaps make it easier to sell bonds and notes because traders are then willing to deal and trade in them to facilitate the bond/note market.

Default Swaps were the type of obligations that became well-known in the past financial meltdown. So they became the targets of official abuse. Underlying causes of the meltdown could be attributed to government policies, as I have noted before, in my comments.

CDS’ reputation got scapegoated. But they are a valid and useful investment vehicle when traded in open markets. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole tweets.)