Dr. Martin Hash Podcast

Credit Default Swaps, or CDSs, caused the 2008 Lehman Bros economic emergency. CDSs are one of the oft-referenced “derivatives” the financial system is so enamored with. Derivatives aren’t real investments, they’re bets on investments hiding under the guise of insurance but real insurance is a one-to-one ratio, where the payout is limited to the loss, but there can be an infinite number of CDSs issued on the same investment so the loss is multiplied a thousandfold, bankrupting the greedy bank that issued the CDSs under the intentionally naive impression that there was no risk. Of course, the salesmen who issued the CDSs and the managers who got the bonuses all get to keep their ill-gotten gains while the public absorbs the loss for Too Big To Fail institutions, and no one goes to jail. This has occurred multiple times in America’s history; the government even made the equivalent of CDSs illegal after a similar exploitation at the very end of the 19th century. Government also used to prevent banks from investing depositor’s money; government used to require banks to have high reserves; and Freddy May & Fanny Mac used to be under regulatory scrutiny, but all those safe-guards were removed by deregulation, and history predictably repeated itself in 2008, now, and will again next time.