Credit Default Swaps

Credit Default Swaps

Like Robert Oppenheimer and his team of nuclear physicists in the 1940s Brickell and his JPMorgan colleagues didn 't realize they were creating a monster . Today , the economy is teetering and Wall Street is in ruins thanks in no small part to the beast they unleashed 14 years ago . So much of what 's gone wrong with the financial system in the past year can be traced back to credit default swaps , which ballooned into a 62 trillion market . There 's a reason Warren Buffett called these instruments "financial

weapons of mass destruction

News Week , September 2008 (Philips

Introduction

On the Monday morning , March , 10 , 2008 , Bear Stearns - the Wall Street giant - had no idea what was going to hit them . The firm was going through a tough time , but nothing that could not be inherently set right , or so it was believed . And then the rumors started circulating that Bear Stearns were running out of cash . Rumors , whether founded or unfounded , can do great harm to a company . By the middle of the week the firm found itself between the devil and the deep blue sea . The institutional investors such as Goldman Sachs who had been investing in it were acutely reluctant to lend it more money , while the public confidence plummeted and people were getting ready to withdraw their money en masse . Bear Stearns stock price was falling with nothing to buffer it . Bear ran out of its capital reserve and had no funds to...