The Largest Pyramid Scheme of All Time: The Effect of Allowing Unregulated Credit Default Swaps
25 Pages Posted: 26 Apr 2010
Date Written: April 12, 2010
This research develops an analytical model of the incentives created by allowing credit default swaps to be contracted with virtually no regulation. The incredible growth in the volume of those financial contracts since they were deregulated in 2000, as well as the credit bubble and subsequent financial crisis that developed as a result, becomes clear within that explanatory framework.
Keywords: credit default swap, financial crisis, debt insurance, credit spread
JEL Classification: G1
Suggested Citation: Suggested Citation