{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

eco paper - Rodion Lerman Effects(A Risks(B and...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Rodion Lerman: Effects (A), Risks (B), and Criticisms (C) of Credit Default Swaps A. Credit Default Swap (CDS) effects are far reaching simply because an original CDS can through as much as 20 trades (Economist). Subsequently, the CDS market is huge – $42.6 trillion huge; this sheer size means that any credit risk failings have the potential to dwarf the sub-prime crisis in comparison and dramatically effect all markets. Andrea Pincus, at partner at Reed Smith LLP, described CDSs as have a “ripple or domino effects.” This compounded with the subprime debacle, unemployment, and energy costs gives the CDS market a chance to have a profound impact on our Macro-economy. Economists have called it the “perfect storm” and some have worried about another Great Depression, but most agree that safeguards are in place to alleviate that risk. Failings in the CDS market lead lenders to become more cautious, potentially leaving mortgage and capital seekers in the dust. Investment is a major component of Gross Domestic Product (GDP) and when capital is in short supply, investment suffers. However, when the economy booms, CDS can bring enormous wealth to our economy as the market flourishes. This might explain why the notional value of CDS exploded from virtually nothing a decade ago to $62 trillion at the end of 2007. CDS’s were traded privately and secretly by banks and at first they supported the notion that new, large markets could function with little regulation. Nonetheless, in our current recession, a vast amount of blame has shifted to CDS. Eric Dinallo,
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
the insurance superintendent for New York State called them “catastrophic enablers for the dark forces that have swept through financial markets.” (Economist) B. The speculative nature of CDS’s, combined with their heavy volume, secrecy, and lack of
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern