The Credit Default Swap, The Core of the Banks' Trouble

The biggest, untold story remains the CDS, Credit Default Swaps.  In March of 08 the warnings were made.  Amazingly, the government allowed Lehman Bros. to go bankrupt which triggered the payout CDSs.  AIG was on the hook for billions for CDS’s they had issued and didn’t have the assets to pay.  Once the Biggest banks (not the consumer banks) believe that the government won’t allow another company to go under they’ll start lending money again.  regardless, the continued existance of these derivitives should be stopped, now. 

             “The collapse of Lehman Brothers Holdings Inc., a major player in the swaps market, caused the insurance Lehman had sold to disappear overnight. It also triggered large payouts on billions of dollars in credit-default swaps that other firms had written on Lehman's debt.

"The Street is feeling the effects of the hit from Lehman, and what's going on in the CDS market is a reflection of how no one trusts each other in the credit markets," said Carlos Mendez, senior managing director of ICP Capital in New York.” WSJ.com SEPTEMBER 19, 2008