Financial "experts" and economists seem to speak a different language to the rest of us. They rely on us not understanding what they're on about. They know that if the gamble which constitutes the supposedly all-powerful "markets" is revealed to us we will see just how crazy a system capitalism actually is.
But the truth is revolutionary and it is important that we look behind their jargon. Here we explain just a few of the most commonly heard terms
CREDIT DEFAULT SWAP (CDS)
At its most basic a CDS is basically an insurance policy taken out against a loan default. For Example: Bank A is owed $100 million by Bank B at an interest rate of 5%, giving A an income of $5million per year from B. Bank A goes to Bank C and buys "protection" against the possibility of Bank B defaulting on the loan, for $500,000 per year.This is a Credit Default Swap (CDS). Good business for all it seems – A retains $4.5 million per year of the interest and C has an income of $500,000 per annum for doing basically nothing. As long as B is able to repay the loan at the end of the 10-year term all are happy. But what happens if B defaults? Now Bank C owes the $100 million to A. But that's the gamble it was willing to take. And more than likely C has "hedged its bets" by selling on the risk to another "insurer".
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