Credit default swaps (CDS) - What are they and should investors be worried about them?
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- čas přidán 1. 06. 2024
- Deemed financial weapons of mass destruction by Warren Buffet. Tim Bennett explains what a credit default swap (CDS) is and whether or not investors should be worried about them.
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Video series by CFA UK Highly Commended journalist Tim Bennett. / timmoneyweek
This channel is one of the best on CZcams, making complicated things simple and clear, what a pity the author stopped posting!
Follow him on Moneyweek channel.
It's 2021 and I have marathoned almost all your videos.
great help
Is there anyway to view CDS rates for companies and banks without access to a Bloomberg terminal? Thanks in advance!
question
1) what happens to the underlying assets that the bonds usually given on?
for instance in 2008 the houses would the ownership of the properties be passed on up the chain to the insurance bank issuing the cds.
2) is there a derivative market for cds, where a third party without owning the bond can pay a premium to the insurance bank for payment if the bonds fail. even if they don't own the bonds.
asking as saw somewhere someone say insurance banks sold cds several times over on the same securities like a derivative trade.
great job
Great video.
thank you sir
great video
Please clarify...is the insuring institution who receives the premium payments insuring the agreed upon value of the bonds because you mentioned that bond values go up and bond values go down. Fed raises interest rates and my bond is valued less as it's yield is less than that which the market is paying today....or are they paying an agreed upon value should the market tank..in other words you pay me a premium of $x on a quarterly basis and I insure that the $1.00 bond will pay out, if defaulted, say by no less than 70 cents on the original face amount of the bond?
amazing explanation
keep it up
best finance channl, hands down
need video about Orange county Citron portfolio, I want to study the case and know how can people lost so much on@interest rate,and could we do better when look back with todays financial instrument.
Very clear explanation. Thanks.
This is hitting harder right now
please make a vd about caps and floors
I've looked this concept up a number of times and never seemed to fully understand it, until this video! Thanks a lot.
Nice.
Any video on Securitization
This chap is a brilliant teacher/explainer.
Thanks Tim. It explains very clearly about CDS and helps me to study CPA program.
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
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Your video to good
So an INSURER charges a fee for the deal -BUT what assets do they have set aside to cover their obligations? Paper?
great introduction, it really help me to understand more about CDS.
Good job!
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
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you are a top man, really appreciate your work.
Please keep going on.
MoneyWeek I've been tying to find a explanation of CDS's in order to help my tiny brain understand ther goings on in the film The Big Short.... and this video has just helped more than any of the many other videos I have watched... excellent.... Thank you
wow so cool
Fantastic video. Thank you for the insight!
Thanks! Big help!
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
+1**5**4**0**6**7**0**7**1**7**9
Thank you for the video. The additional information about the current market situation made it particularly interesting to watch.
Thank you, Sir. (For this very simple - easy to follow videos about a complicated subject).
Thanks for the clearing this out for me. This has been very helpful giving light to a mysterious concept.
My brother invited me to watch 'the big short' I thought, I'd get it eventually but.. nowhere near. This has been an amazingly clear explanation, thank you, i'm feeling a whole lot less stupid now then i did a couple of hours ago.
Thank you, for this!!
what you are not saying is that an investor can buy cds without having an asset to cover. it's like you can buy insurance on a house that you don't own. in this case, you earn your money when the house is burning, not when the house is well managed. if it's not a weapon of mass destruction, what is it...
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My friend,we should get you a job @ JPMorgan Chase National Association or Bank of America because... ... That's exactly how those two companies carry it... from a RMBS Operational standpoint. Have a good one.
What about 'naked' credit default swaps?
Should you be be allowed to insure something you don't own?
----
AIG couldn't pay it's obligations to the investors that were actually trying to insure bonds because AIG had made huge side bets with 3rd parties that were simply betting on failure.
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
+1**5**4**0**6**7**0**7**1**7**9
It's the same as buying puts.
Thank you! The video series are so helpful and well explained
very well explained!
You misquote Buffet. IIRC he said derivatives were weapons of mass destruction.
Do a video on the ringfencing of british banks separating the investment ad retail sides. Also talk about the problems and criticisms that have or could arise.
Where did the find the per country basis points? I was looking for the value assigned to the United States.
The bp's represent the bookies "Line"... the line is subject to change, game to game... it's all gambling until, the players learn how the game is played... There's a ridiculous and diabolically simplistic method for making millions of dollars, right here in this short video... Read Henri DE's comment and my answer... Stay UP.
For anyone looking for related topics try my videos on "what is a swap" "what are futures" and "what are options and covered warrants". Tim.
Can you start posting again, man?
Thanks!! Helpful :)
Carenna Willmont its 0.005x10,000,000 which is 50,000
this is not the guy from the inbetweeners, right? :D
Need a video on MBS
Great explanation !
from where can i find the basis points for different swaps, any specefic website ?
Tim, amazing work done by you in all the videos :) ... GBU .. Could you tell me if I can find these videos converted & made into notes as well. I'm a trainer and that would help me :)
Does the owner of the CDS get to collect the insurance payout if the country is bailed out by the central bank? Because if they get bailed out then the bonds are still good.
Only if the bonds flopped and the premiums were paid-in-full...
That was the topic of lawsuits in the past. In Greece where they defaulted but returned 50% of bond value, courts ruled CDS providers needed to pay out the other 50%
1400 basis points is 14% no t 1.4%
Fuck dude the weed has me in deep tonight. Truly scary shit lol straight spellcasting
which software is used for valuing interest rate options, Credit default swaps, MBS etc?
Incomplete depiction at the beginning. CDS aren't only for Investors, they are also for Investors investing on the original Investors investments liquidity, or more likely against it. That's where the mass destruction comes in. Ballooning Debt Obligations because the Insurers got greedy for more and more basis points without ever thinking too long or hard about the incurred obligations. So if a major former highly rated investment like a nation state - e.g. Greece - threatens to go under and force the Insurers (among them the big banks) to pay out the side bets who were jacked up gigantically in the first place. Because the higher the insured investment the higher the basis point premium the insurers got. They just all bet like idiots and now try to hold Europe hostage by telling everyone the lie that everyone's economy will tank if the incompetent bastards that are those piece of shit banks/insurers go the way of the dodo. And instead of letting the losers go bust, our governments have propped them up by propping up their investments - e.g. Greece. And propping up is just too nice a term for what happened there. Europe collectively fucked Greece and the Greek people up their collective ass by badgering the Greek government into implementing misguided austerity bullshit over sensible reforms. Just so the fat cats at the esteemed financial institutions weren't outed as the fucking frauds they were. They got greedy and our nation states are footing the bill through the EU financial bureaucracy. The only right solution would have been for the European nations to band together and issue securities for the citizen investors and nationalize the banks or better yet let them go bust for the shit they pulled and supplant them with more neutral bureaucracies or more tightly regulated new banks.
Yes, Credit Default Swaps can be benign and sensible when done right. But they aren't called weapons of (financial) mass destruction for shits and giggles.
Bad video.
Brilliant explanation. Thanks so much. May god bless you with a 1000 children.
That would be more like a curse!
Blaming this whole problem on Greece's own greed/stupidity is wrong, given the shitty situation they were put in when joining the euro, along with all the other countries in Europe that are currently at risk. The euro was a failure from the beginning, because it removed the power from countries to control their own currency to save their economy. This is exactly what happened to Greece which now became the scapegoat for this whole mess. Mark Blyth explains this very well in his talks "Austerity - History of a dangerous idea" and "Global Trumpism"
This whole mess IS essentially Greece's own greed though. Yes, any country that joins the euro essentially gives up their monetary policy and therefore unable to adjust interest rates and other financial variables, however they still have control over their FISCAL policy which is why the euro will eventually fail. ( I give it 1-4 years before failure, more towards 1 if Angela Merkel loses the Germany elections ).
Now when it comes to Greece, their culture is to not collect tax (which is absolutely true) - "you would be an idiot to pay your taxes in Greece" (this came from my financial economics professor). So the Greek government have the ability to borrow on the capital (bond) markets using, effectively, Germany's credit card (EURO) and therefore bypassing the 15% they would have been charged on their loans/bonds and now getting charged the 2% that any good, credible country would have been charged like Germany or France.
You are correct that the euro is a failure from the begining, however, it isn't because it removed the power from countries to control their own currency. It is because it doesn't control their fiscal policy as well.
THE BOTTOM LINE? You need a harmonised monetary, fiscal and banking system and free moment of capital to make the euro work, and sadly, that will never happen.
who sells single name CDS ?
Investment bankers
I wish you were my lecturer. All of your videos are so well explained - simple and to the point. Thank you, great job
You are missing the important part of collateral insurers have to put out and downgrade of insurers
credit default swaps = how to bypass responsibility and create systematic moral hazard
How does it work when you buy a CDS on a bond you don’t own?
Rb
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
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@MrPhilipc13 I have done a video on just that very topic! See "can ring fencing save the banks". Tim.
Russia default incoming here we go again 2008!
Is the math incorrect bc half a percent of 10 million is $500,000 not $50,000. Right?
No, half a percent of 10 million is indeed $50,000.
𝑰𝒏𝒗𝒆𝒔𝒕 𝒊𝒏 ¢𝒓𝒚𝒑𝒕𝒐 𝒕𝒓𝒂𝒅𝒊𝒏𝒈 𝒘𝒊𝒕𝒉 𝒎𝒚 𝒂𝒅𝒎𝒊𝒏𝒊𝒔𝒕𝒓𝒂𝒕𝒊𝒗𝒆. W_h_a_t_s_a_p_p
+1**5**4**0**6**7**0**7**1**7**9
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Yes; how exciting the education is in regarding CDS and other financial instruments when it comes to knowing exactly what politicians don't know. Idiots:) Also isn't odd that the public still wastes time voting for their candidate of choice, really?