Terri Duhon & Betsy Mettler – Explaining Credit Default Swaps

by on March 6, 2010      

in Finance & Economics

Terri Duhon

Terri Duhon

Many of us believe that credit default swaps are to blame for the current economic collapse. I have also read that credit derivatives are another major point source for the global economic collapse. I didn’t know whether such assertions were correct, because I had no idea what credit default swaps are or what they do. Preliminary research indicated that I would never understand these seemingly mysterious securitized instruments without the help of an industry insider. Thankfully, I found some very helpful individuals who were willing to talk.

Betsy Mettler

Betsy Mettler

What are credit derivatives? What are credit default swaps? Why were they created, how do they work, and whom do they benefit? Is there anything positive about credit default swaps, or are they really just instruments of mass destruction? B & B Structured Finance Managing Partner Terry Duhon and Partner Betsy Mettler join us with Web of Debt author Ellen Brown to shed much-needed light on this complex topic.

{ 2 comments… read them below or add one }

1 bammbamm October 4, 2011 at 8:16 am

I’m not an investor, but seems to me that “selling short” can trigger a chain reaction of pre-programmed stop orders. It can also create the idea that someone out there is selling and they must know something I don’t – so I’m getting out too. So it can be destructive. One might argue that buying with “irrational exhuberance”, can create a false reality as well, but, last I checked, an increase in wealth is a better thing than a destruction of wealth.

Secondly, according to my understanding, a short seller is temporarily borrowing someone elses stock, and will have to return that person his shares in a given period of time. But “naked shorting”, means that the stock was never borrowed, even though the sell transaction was made. In this case, you have artificially created more outstanding shares then are actually in existence and you are debasing the share value. You have, in fact, counterfeited stock certificates.

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2 david j. longenhagen January 20, 2014 at 10:31 am

I am listening to this and mumbling colorful metaphors. Since the banks are the controlling party of the Federal Reserve, having the interest rate’s move, will either destroy (or severely maim) either an institution/company/firm, citizen’s, since they can indeed move interest at will. currently they create the rates based on “there” criteria”, having said that since the banks know intimate knowledge of their borrowers, and lenders, and since they can “coax” the move of the reserve since they in aggregate own the federal reserve system, they are in full truth a R.i.c.c.o. act waiting to be criminalized, hence the “we can’t be prosecuted clause of the huge bailout. Indeed, the banks caused the need for the bailout, and then decriminalized their deeds. “Diabolical”.

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