Date registered: Feb 2006
Vehicle: 1999 ML320
Mentioned: 1 Post(s)
Quoted: 310 Post(s)
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A.I.G. does business with virtually every financial institution in the world. Most important, it is a central player in the unregulated, Brobdingnagian credit default swap market that is reported to be at least $60 trillion in size.The field is already starting to feel the pinch on this, some leveraging in the 35:1 range on security. In simple terms, if your $200,000 mortgage is called in for default, YOU would be expected to have over $5700 in value on the property. The financial sector has managed to set itself up to where THAT is not an unrealistic or particularly rare potential.
Nobody knows this market’s real size, or who owes what to whom, because there is no central clearinghouse or regulator for it. Credit default swaps are a type of credit insurance contract in which one party pays another party to protect it from the risk of default on a particular debt instrument. If that debt instrument (a bond, a bank loan, a mortgage) defaults, the insurer compensates the insured for his loss. The insurer (which could be a bank, an investment bank or a hedge fund) is required to post collateral to support its payment obligation, but in the insane credit environment that preceded the credit crisis, this collateral deposit was generally too small.
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