Credit default swaps became divorced from underlying value
Key difference between a real insurance policy and a credit default swap contract is that neither party needs to own the object of the insurance; multiple non-owners may simply be paying a fee to speculate on a particular outcome.
Immediately related elementsHow this works
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The Global Financial Crisis »The Global Financial Crisis
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Immediate triggers of the financial crisis? »Immediate triggers of the financial crisis?
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Pathology in the Credit Default Swaps market »Pathology in the Credit Default Swaps market
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Credit default swaps became divorced from underlying value
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Absence of regulation meant swaps not supported by capital reserves »Absence of regulation meant swaps not supported by capital reserves
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