GOP members demand words "Wall Street" not be in financial crisis report.

[Kasz216]

ChichiriMuyo said:

Kasz216 said:

ChichiriMuyo said:

But there was absolutely no way for them to fail serperately because of credit default swaps. 

Huh?  Credit Default swaps exist specifically FOR diversifying the risk to make it less risky.

Instead of having 5 loans in Las Vegas, you have one in LV, one in Chi, 1 in NY etc.

In an regular market, Credit Default Swaps makes things safer.

That's not a credit default swap.  A credit default swap is an agreement where the buyer of a financial instrument pays a small amount to the seller on a regular basis, and if the instrument defaults the seller swaps the amount lost by the buyer in exchange for taking back the failed credit instrument.  It has nothing to do with diversifying risk by spreading it around to multiple markets.

What you're talking about are tranches, in which case you only have a small parts of many, many loans.  THOSE were meant to diversify risk by making a single financial instrument out of many spread all over the country.

Maybe the problem here is that you don't actually know what you're talking about, since you don't know the basic definitions of the important terms in the discussion.  Just a guess.

When you pay money in a Credit Default Swap the swap includes deals from all over the country.    Hence why it rarely defaults.