Friday, February 5, 2010
Once again, its the credit default swap contagion
Remember how credit default swaps were supposedly making the system safer by spreading risk?
Investors may be betting that banks and other European companies are likely to suffer if European governments like Greece are forced to institute austerity measures like higher taxes that end up snuffing out economic recoveries. Banks also are large buyers of European government bonds, and may be selling bonds or buying insurance using credit-default swaps to protect themselves from feared credit-ratings downgrades of countries. Furthermore, banks may be buying insurance to offset insurance they actually sold to other players, observers say.
Any fresh round of fear surrounding banks, meanwhile, would also imperil the companies that borrow from them.
And who is trading them?
Posted by Palmoni at 8:05 AM