Tuesday, April 1, 2008
Not an April Fool
Marketplace has a short radio spot on Credit Default Swaps, a derivative in the relatively unregulated shadow economy. In 2003, Warren Buffet called these speculative derivatives "financial weapons of mass destruction (BBC 3-14-03)." Although Credit Default Swaps are a $45 Trillion market, few people understand how they work. Investment expert Christopher Whalen states that JP Morgan's buyout of Bear Stearns was made because Bear Stearns had $2.5 Trillion in these derivatives, and JP Morgan, another big investor in Credit Default Swaps, could not afford to let its fellow investment bank go down.
Listen to minutes 8:00 to 12:09 for Whalen's analysis.