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View Diary: Too Big to Fail or Too Big to Jail? (44 comments)

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  •  you definitely must mention Credit Default Swaps (4+ / 0-)

    since they were the things that in the end brought down the banks . . .

    Credit Default Swaps were insurance policies that banks sold against CDO's and MBS's.  If your security tanked, the bank would pay off the loss through a Credit Default Swap. Eventually, banks issued so many Credit Default Swaps that their combined value exceeded the total GDP of the entire planet. And when the mortgage-default cascade began in 2008, those same banks were utterly unable to cough up the dough to pay off all those credit default swaps---which led directly to their bankruptcy.

    So not only did the banks know their CDO's were risky, but they happily made money off the risk, too. Until it blew up in their face and they all ran to us crying.

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