CHICAGO — The lawsuit filed last month by the U.S. Securities and Exchange Commission against Goldman Sachs for securities fraud, charging the bank with misrepresenting the way a collateralized debt obligations had been formed, has revived public disgust at credit default swaps (CDS), the instrument used to bet against these CDOs.
(At last week's Senate hearing on Goldman Sachs, Sen. John McCain had likened the process to wagering at a casino on the outcome of an athletic contest.)
Before the 2008 financial crisis, CDSs were an esoteric product, known only to a restricted number of sophisticated investors and specialized academics. Today, they are a household name, synonymous with unruly speculation, boundless greed and, ultimately, systemic instability.
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