Last month, the International Swaps and Derivatives Association estimated that nearly $47 trillion in swaps were outstanding as of June. That number might include transactions not cleared by the depository corporation.
The most default swaps have been written on the countries of Turkey, Italy, Brazil and Russia, according to the new data. They were followed by GMAC, the auto finance company that is partly owned by General Motors. Others in the top 10 include Merrill Lynch, Goldman Sachs, Morgan Stanley, General Electric Capital and Countrywide Home Loans. But that ranking does not account for contracts written on multiple units of the same companies.
In a credit-default swap, a buyer of protection pays an insurance premium to a seller who agrees to cover any lost interest or principal on bonds or loans issued by companies, countries or other organizations. The buyers and sellers are typically securities firms, hedge funds, banks and insurance companies.
Policy makers have been unnerved by the rise of the market because they are worried that sellers of protection may not have enough reserves to pay future claims and that default by one party could lead to a cascade of failures throughout the financial system. That fear led the Federal Reserve to extend an $85 billion bridge loan to the American International Group and prompted the Fed to arrange a sale of Bear Stearns to JPMorgan Chase. Both A.I.G. and Bear Stearns had bought and sold billions in swaps.
Industry officials, however, have argued that while the total amount of credit-default swaps appears large, many of the contracts offset one another. Many players in the market hedged their positions so if they had bought protection in one transaction they would sell it in another.
Source:http://www.nytimes.com/2008/11/05/business/05swap.html
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