Friday, March 27, 2009


Finally Congress and the NY State Attorney are looking at the remaining 99% of the $170 billion given to AIG by the government. There attention is increasingly focused on who AIG paid with the funds, especially the credit default swap counterparties. So, it appears it is time for a primer on credit default swaps (CDS). Just to set the context, at 12/31/08 there were approximately $55 trillion CDS outstanding. That is roughly 4 times the value of the stocks on the NYSE. So, now we know it is a very large amount.

I was going to attempt an English language version of CDS 101, but I found this article from Newsweek that does a better job than I could ever do. It is a very easy non-technical read. If you want to spend 10-15 minutes to understand CDS from a more technical standpoint, check out this from Wikipedia.

Please read the Newsweek article if you want to follow the AIG CDS bouncing ball over the next few weeks.

Cheers, Mike

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