The Demystifier
The $26 trillion credit default swap market, which was just getting started a decade ago, is now twice the size of the U.S. economy. Think a C.D.S. as an insurance policy that offers protection in case an investment goes sour. Illustrator Christophe Niemann explains it in terms that even a monkey can understand.
The Proposal
C.E.O. Arthur is in a little bit of a tough spot, so he asks his friend Banker Bob for a loan.
The Counteroffer
The problem is that Banker Bob doesn't entirely trust C.E.O. Arthur to pay him back. So he buys some financial insurance from Hedge Fund Charlie, who, not being stupid, charges Banker Bob a one-banana fee.
The Hitch
C.E.O. Arthur loses his bananas. But Banker Bob isn't worried, because he has the insurance from Hedge Fund Charlie.
The Outcome
C.E.O. Arthur is broke, Banker Bob gets his money, and Hedge Fund Charlie keeps his fee. That's the way it goes in the jungle.
