"Credit Default Swaps"
Next Domino of The Global Credit Crunch?
London, UK - 25th February 2008, 09:58 GMT
Dear ATCA Colleagues
[Please note that the views presented by individual contributors
are not necessarily representative of the views of ATCA, which is neutral.
ATCA conducts collective Socratic dialogue on global opportunities and threats.]
The increasingly large dark cloud looming on the financial
markets horizon is the threat of Credit Default Swaps (CDS) derivatives
risk, which is likely to dwarf the sub-prime crisis when in full play. The
global market for CDSs has rocketed over the past four years as they have
been widely utilised by the thinly capitalised off-balance sheet vehicles
created and/or utilised by large financial institutions -- banks, insurance
and reinsurance groups, hedge and investment funds. The total amount of
outstanding CDS derivatives' trades worldwide is notionally USD 46 trillion.
This CDS market dwarfs the markets in US stocks (USD 22 trillion), mortgage
securities (USD 7 trillion) and US treasuries (4.5 trillion).
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