CDS , Credit default swaps, 2010


cds 2010

There is this myth that sovereign (countries) do not default. Actually this is a rather amusing concept as, with a very few exceptions virtually all have at some point in their history. Outright reneging or, what amounts to the same, refusing to pay , is actually  quite normal. For obvious reasons simple debasing one’s currency is to be preferred, especially if much of the debt is held by foreigners that do not vote. Better yet obfuscate the issue, your municipal bond, even if issue by ,shall we say a very big US city , may be entirely dependent on the use of the swing-set in the park for its repayment and not that city’s general revenue, this is clearly explained on page 234, paragraph e, subsection 21. Did you miss it ?

And, if you assume you do not own any of this stuff you may be surprised to learn that the 7% that you are supposed to earn on that XYZ bond fund, is entirely predicated on the proper functioning of this market.