brianoh

Coming Soon: The $600 Trillion Derivatives Emergency Meeting

As I see it, most of these CDS contracts are just gambles. Where there is a default of the underlying debt, the "guarantor" of the CDS is liable. This then becomes a problem where the CDS is not a gamble, and is used as insurance for a real debt. If the "guarantor" of the CDS has insufficient funds (bankrupt), the CDS contracts will be paid-out pro-rata. The main problem is where the CDS is not a gamble, but is a real debt. If this is the way it works, isn't it time the law was changed to give the holders of debt priority over all other CDS contracts? Please tell me what I am missing.