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    Repiglican Roast

    A spirited discussion of public policy and current issues

    Name:
    Location: The mouth of being

    I'm furious about my squandered nation.

    Friday, February 22, 2008

    Next Mega-Credit Problem Looming?

    This is what comes from deregulation
    [...]
    CBS News correspondent Kelly Wallace explains that credit default swaps constitute a shadow financial system, out of sight and unregulated, that greases the wheels of business.

    The swaps are a form of insurance, Wallace observes, with "big players -- banks, pension and hedge funds -- engaging in a high-stakes crap-shoot, trying to protect themselves if companies fail."

    "This is a big one," cautions Harvard Economics Professor Kenneth Rogoff. "If this one got into trouble, it would be a big problem."

    Wallace points out that the market for the exotic financial instruments has leaped, by some measures, from $1 trillion to $45 trillion -- about twice the size of the entire United States stock market.

    What could be scarier than a market about defaults when things go bad, Wallace asks, rhetorically? How far-reaching could the problem be if they all start going belly up?

    "Remember," says Forbes magazine Associate Editor Matthew Mill, "that ... everything in the economy is tangled together."

    And, Financial Times U.S. Managing Editor Chrystia Freeland told Early Show co-anchor Harry Smith Thursday, "An estimate from (one very bearish economist) this week was about $250 billion could be the hit from credit default swaps, which is similar to the hit from the sub-prime mortgage instruments."

    [...]

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