I think I understand why the economy is in meltdown. It's because I barely
undertsand it any more::


Credit default swap

A swap designed to transfer credit risk. The buyer of the swap makes
periodic payments to the seller in return for protection in the event of a

A bank which owns a lot of mortgage debt could swap it, but would have to
make a pay-out if those mortgages were not repaid.


Derivatives are a way of investing in a particular product or security
without having to own it. The value can depend on anything from the price of
coffee to interest rates or what the weather is like.

Derivatives can be used as insurance to limit the risk of a particular

Credit derivatives are based on the risk of borrowers defaulting on their
loans, such as mortgages.