What Caused the Economic Crisis?

Warren Buffett called them “weapons of mass destruction” in 2003.President Bush said they had to be regulated.So did the chairman of the Securities and Exchange Commission, and the current head of the Federal reserve.As did the G-20 group of the world's 20 richest nations.Former Federal Reserve Chairman Alan Greenspan - after being one of their biggest cheerleaders - now says they are dangerous.And a Nobel prize-winning economist said they should be “blown up or burned”, and we should start fresh.What Are They Talking About?What are the above-listed folks talking about?A financial instrument called “credit default swaps” (CDS for short).CDS are like an insurance contract, where the purchaser buys "insurance" that a company won't go out of business from a seller. If the company stays in business, the purchaser pays premiums to the seller, but if the company goes belly up, the seller has to pay the face value of the CDS "policy".Why are CDS so dangerous?For the rest of the article go to: Cause Of Economic Crisis
E-mail me when people leave their comments –

You need to be a member of REO Pro Network to add comments!

Join REO Pro Network

Comments

  • Carlos,
    You have hit the nail on the head when speaking of CDS's, when there was a call to regulate them in 2004, I remember hearing about how great they were because they spread the risk of the sub prime mortgages, members of Congress were patting themselves on the back for increasing home ownership. In the thrity years I have been involed in the housing business I have never saw such disregard for logic, they were lending money to people without a visible means of support, with bad credit and selling the loan on the secondary market as A or A- paper. No wonder we are where we are.
This reply was deleted.