synapse collapse

AIG, an insurance company, sold a lot of instruments called credit default swaps, or CDSs. Essentially, this is insurance against a bond. If you buy a bond and the bond-holder fails to pay out, your CDS will pay out. AIG sold a lot of these to a lot of people, without regard to the risk exposure that comes with selling an insurance instrument of this nature.

The click-through article from Reuters provides an excellent explanation of this situation, how the subprime mortgage market led us here, the repercussions of AIG folding, and justification for the US federal government’s bailout.

This makes me less annoyed at the bailout and much, much, much more annoyed with the thoughtless, laissez-faire behavior that lead the global economy down this rat-hole.