Monday, April 28, 2008

The "Credit Default Swap" scam

A quick follow-up to my previous comment about 'credit default swaps' being a scam. I recently came across these 2 excellent and very detailed explanations of the issue:

Longer, more detailed,

Shorter, sweeter,

Basically, these things are a kind of fake insurance but which the government accepts as real insurance. Because of a loophole in the accounting laws (e.g. GAAP) companies can decline to state their financial losses. "Because it's insured!" It's like buying PMI for your mortgage only your 'insurer' is your brother-in-law who never expects to have to cover your mortgage and doesn't have any capital reserves either (like a real insurer would).

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