Credit Default Swaps Are Back

Credit Default Swaps (CDS) are back and that’s not bad. Except when left-leaning politicians in Washington are looking for scapegoats.

They’re an insurance policy in the event the issuer of a bond or note defaults. They come in handy in volatile markets. Credit Default Swaps make it easier to sell bonds and notes because traders are willing to deal and trade in them to facilitate the bond/note markets.

Of course Credit Default Swaps were the type of obligations that well-known financial meltdown victims had. So they became the targets of official abuse. Underlying causes of the meltdown can be attributed to government policies directly, as I have noted before, in my comments.

CDS’ reputation got sullied but in time will be repaired, as they ought to be. They are a valid and useful investment vehicle when traded in open markets.