Credit default swaps | Finance & Capital Markets | Khan Academy

[@captainobvious1415]

"Hey wait, wait, wait, AIG. You only have 100 billion dollars in assets, but you have insured 1 trillion dollars of other people's debts!" Lmao I laughed so hard at this.

[@utubewatcher806]

Wasn't as funny in 2008...

[@tannershep3311]

In the financial sector as a buyer do your research don’t go with the flow and do your own numbers and make your decision because somehow the lawyers found a way to diversify liability and at the end no one is at fault it is part of the game unfortunately

[@DIYDanCars]

@@utubewatcher806 By his example AIG is leveraged at 10:1, but back in 2008 some banks were leveraged 30:1. Talk about insanity!!!

[@fromwaydeep]

There's something shady going on...

[@kwrer6087]

fyi only...How MultiBank Group evolved into one of the largest online financial derivatives l.linklyhq.com/l/2JS #banking #finance #derivatives

[@abhishekrattan3508]

came right here after watching big short

[@captainobvious1415]

+Abhishek Rattan all over your keyboard??

[@abhishekrattan3508]

+General Sarasota hahaha...... nah not literally :)

[@dannysipos]

same bro

[@davecrupel2817]

Thats a nice shirt. Do they make it for men?

[@someguy6528]

Loool same

[@JA51592]

love how you dont waste time with unnecessary prologue and get right to the point!!

[@beatilcoheadsmith]

I'm doing research for an author and have needed to learn the entire sphere of the financial lexicon from scratch. This video is the best explanation on CDS's BY FAR that I have seen

[@MrLavinfx]

actually i was scare to learn about CDS but the way you explained it was so easy to understand, thanks a million.KEEP THEM COMING we are paying close attention

[@Steve_Takes]

Not for nothing this is great. I needed this as I'm reading "The Big Short"

[@kosaksipasapukazh]

+Durandisse84 Durandisse I too came from The Big Shor

[@adolfhilter]

+Durandisse84 Durandisse Me 3

[@arianopel]

+Durandisse84 Durandisse same here

[@MaanavKhaitanChannel]

Same here!

[@PINAKIDEY]

Same here lol

[@mastermindlord7901]

2020here and still watching this right after watching big short. Gives me straight information regarding the principle of financial fiasco in 2008.

[@animeeditor2714]

watching this in 2022 and was watching the big short but I left it in the middle as I was confused so I ended up here xd I realised this vid was 11 years old that's why its in 240p lol

[@Steve_Takes]

Well who the hell is rating Moody's ability to Rate!!!

[@starsareangels]

+Durandisse84 Durandisse No one. Same with Standard and Poor's and Fitch.

[@FlexSZN23]

Shareholders

[@seandafny]

Moody’s

[@the_real_economics]

You are as an investor, as a free-market participant. You are supposed to be a sane person - you either take into consideration Moody rating or disregard it. You are a private person making a decision with you money. When you make money it is your private profit, when you lose money it is your private loss. What is important that if something goes under, government and the FED are not supposed to step in and save your private losses with the taxes or inflation money.

[@shashankbharadwaj9678]

The US SEC in the US, FCA in UK, SEBI in India; basically your national securities regulator.

[@SkISl0pE]

Saw the Big Short, now I'm reading the book, and I needed this video to understand it! Thanks Sal!

[@SamvitAgarwal]

This video was published at the perfect time

[@excelisfun]

Sal, You are so amazing! Thanks for making it easy to understand! --ExcelIsFun

[@onion7568]

remember 13 years ago when people would sign off their youtube comments?

[@excelisfun]

@@onion7568 : ) : ) : ) : ) : )

[@RioChandraa-xr2cp]

Clearly understandable, very clear & precise! Love it! Just realized it was posted 15 yrs ago... truly an heritage!

[@jonschweer7494]

I have been in the fin markets since '73. I traded since 1987 in total OBIs so I got my scars. I have tried to explain it in layman's terms to my friends, found I had to back track often (and lost them in the story) but so far your C-D-1 made it clear to them. I will hit them tonite with C-D-2. Thanks for taking the work out of my hands.

[@opufy]

how ironic this was uploaded right in the midst of the housing market crash that's why im here

[@canopeaz]

It's nice that this video was published right when the Financial Crisis happened 11 years ago.

[@snay6869]

Aged like fine wine

[@donna8]

Sal....u are BRILLIANT! This was so clear. I totally understand CDS now. I have searched on the net for examples of what the heck they are...and you explained it so clearly here. Right...now onto the next video (I've watched about 5 today - they are addictive!)

[@john.james-rambo]

Wish these old videos can be enhanced of Quality. 14 years later still helping everyone. Thank you guys.

[@jscanlan22]

Great job! Since, now even Greenspan admits that, markets are not self regulating. Who should we look to to set rules and regulations to govern these financial insturments?

[@MsMichaela999]

Absolutely love the khanacademy. Just when I though derivatives exam seemed pretty impossible, it all of a sudden all makes sense. God bless this lectures ;) Can you come and teach at our University?

[@khanacademy]

I'll have to ask my wife :) I think she'd prefer that I stick to recording videos.

[@greatjoeblack2202]

Your explanations are very interesting, pls keep on

[@CameronCope]

thanks for this tutorial ! I have started to do research into how the banking/financial system operates & as soon as I came across the point if CDS's I felt like I was missing something - because it made very little common sense ! What I am seeing though, is that these systems are not based on common sense and what is best for all but rather what makes money for specific parties for limited amounts of time - no self-responsibility, no concern for the impact on others ! WTF?!

[@jordanorta7476]

This dude saved me in college for chemistry, Microbio etc. Is there no limits to his brain!?

[@Steve_Takes]

Holy shit, from 6:45 to 7:10 Nails it all together guys.... but you gotta be patient and watch from the begining

[@epsonc882009]

Just watched "The big short", this is answered my question. Thank you!

[@watchergd8369]

I was surprised this video was made 13 years ago. My curiosity started to be solved thanks to that video

[@PunmasterSTP]

Credit default swaps? More like "C'mon, this video rocks!" Thanks for another banger.

[@adamafernandes9567]

"Pension fund.. Pension Fund.." love it!

[@orginunknown]

EXCELLENT JOB! this is how this stuff should be explained. dumbed without financial jargon thats meaningless to the layman. bravo.

[@songmin4453]

This presentation was the most wonderful I have seen! so simple to understand. Thanks a lot!!!

[@jonathanwood8847]

9:54 "you get insurance, you get insurance, everyone gets insurance!!!!!!"

[@deshn21]

You are one of the best teachers in the world

[@hammerhead19able]

Thank you. Explained in a way I can understand how all this works.

[@georgeofhamilton]

I didn't know that Khan Academy was this old.

[@hassansaad6536]

Khan academy is even older than that !

[@lawforever]

This guy is great in teaching us these diffucult subject. Awesome!

[@ysfkfnd]

There are multiple issues with credit rating companies. 1. They rate the company situation at the present for a debt to be paid 10+ years from now; no commitments on any sides. 2. They are paid by the company being rated. 3. They have no liabilities if rating degrades over time. 4. A company's rating can be dramatically downgraded in 2 years from AAA to BB, for example.

[@08Marina08]

Thank you so much!!!! Tomorrow I am writing a test and I didn´t get the whole thing about Credit Default Swaps... but now, it´s clear!!! Thanks!!!

[@ashimdahalii1874]

cant believe its 15 years old

[@JulioSoto1685]

Great explanation. Thanks for freaking me out.

[@colonelburger]

Amazing clarification. Thank you very much for creating this. I am so angry at those Insurance Companies!

[@justincdotme]

thanks, now I can get back to watching The Big Short and actually understand it.

[@bhaskarvishwajeet226]

Watching this exactly 16 years later - September 29, 2024.

[@ispinola]

Credit Suisse CDS situation has me watching this.

[@kennethsparks4824]

outstanding!!! Thanks Sal!!!

[@misao3004]

I love and hate how complicated the financial world is

[@thegrandfoundationchurchof7138]

Free online education. Must watch videos... Very Cool.

[@gc7304]

you make me understand the world man. thank you

[@charizarduz]

Im just watching the big short right now, paused it to come here, thanks for making me feel like im not trying to read hieroglyphics!

[@jerwinbalicano5046]

I like how you convey the context without exploiting their nastiness

[@kabmedina]

If that is the structure, if I am Corp A or B with a low rating, I would just default entirely because I know that someone’s backing me up in case I default lol. If that’s the case, does it shift the liability from Pension fund to AIG?

[@pyaethein1699]

Nice explanation! It was easy to understand.

[@DeeSee25]

Wow, this helps a lot. This makes a lot more sense now.

[@mavrick0ck]

thanks so much. this is such a clear tutorial on what a CDS is..

[@dlhfm4281]

Simplest way to think it is buying a credit default swap is like insurance and you pay a monthly premium to the bank. In return the bank promises a payout if something happens, in this case thousands of mortgage backed securities failing and the banks payed out big time to the 3 big shorts.

[@duc9395]

Unreal videos. Good work!

[@greenmirror5555]

imf/nato wealth theft taxation currency is an amazing subject! Article 1 Section 10

[@chalmerbasham695]

The Government qualified to “rate” risk of investments. LOL $34,000,000,000,000.00 federal debt and the only way to eliminate is default or print. Rate the results of doing either or some of both. 🆘

[@smclo03]

Excellent! I never truly understood CDS's before this video.

[@LeoLeo-sh4vm]

I'm always learning new terms in Wallstreetbets.

[@FluffHead]

Awesome....Ive been trying to understand this and couldnt find any videos that made sense to me, but this video made sense. thanks

[@kennethmulongo6341]

I thought this video was great. Had no idea how CDS works but now I do. On top of that I also understand the massive risk with this! Thanks so much

[@blin7509]

Low interest rate is the problem. Now all these pensions can’t pay their obligations with interest income so they have to go out their ways to fund the payouts. No wonder Robert Kiyosaki wrote the book

[@vivs005]

Thank you so much for that. I'm a dummy so I didn't get anything from wikipedia or investopedia. But your video cleared it in once. Thanks a lot!

[@jaykay9433]

You are a good teacher my friend

[@MOliveira-m5h]

I'll explain it better. It's like if you're in college and you have a 400 level math requirement that only smart people get into and they grade on a curve. And then there are kids that failed algebra 2 that aren't allowed in the class. You know that you're going to fail this 400 level class with about a 30% as a final score. But the 400 level class grades on a curve so you find a way to enroll all of these Algebra 2 failees into your 400 level to score -20% because they robbed and beat up the professor on top of failing. You use the trauma of your professor dying after being beaten to death in class to talk the school into giving you an A for the class. That also explains how the origin story of how the people working at the bank got their job.

[@bharati1986]

Brilliant stuff. had been trying to find reading material on this but kept getting consfused. this is so good! thanks!

[@JoseTorres-ry9qe]

Me watching this video after the US Bonds Treasury deranks from AAA to AA+

[@bobroberts5074]

Best explanation hands down. Thank you

[@tr4nscend]

the fact that this was posted in 2008, epic

[@malthus101]

Excellent video, very clear now on what they are - I will watch your other videos! Thanks.

[@Alex-zz6vt]

Watch this years ago. But, this video is gonna get popular again in 9 month to a year

[@rj8954]

Very useful tutorial. Clear and easy to understand. Keep it going.

[@notme222]

@quikesanjur We have lots of different levels: Social Security: US government provided, funded via special tax, available to everyone @ 65. (And due to be under-funded in a few years.) Pension: Provided by employers, sometimes a company, sometimes a state or local government. The money pool is managed by experts, following rules. 401k: Employer/Private co-op with special tax rules IRA (Investment Retirement Account): Private savings with special tax rules. Others too, plus your own svngs

[@kumaravelrajan]

Excellent. Just excellent.

[@idally89]

Good explanation. Yet, do you agree about what some market commentators argue that unless there is a strict control of these credit derivatives what happened few years ago in 2007 may happen again?

[@frenchsaber]

"Let's say I'm a pension fund" What the fuck is a pension fund? First sentence and I'm already lost

[@FlippersTF2]

banana aya playa just a fund that invests peoples pension money

[@prathmeeshpwaliwandekar6760]

Fabulously explained. Thanks

[@NavdeepSingh-bv3lv]

Lol this is a productive day for me. First the awesome Matt Damon narrated documentary, Inside Job, the the big short and then these vids. I love knowledge. ;)

[@choozu]

Today I “got” The Big Short! 😍 Love you man... Subscribed

[@christophgouws8311]

You explain it so well

[@tamadawoo5676]

watching [the big short] now. good lecture.

[@mattfotsch5550]

You make it sound like the credit agencies couldn't do a good job. It is true they blew the MBS and CDO markets. However, they were quite accurate on ratings for everything else. Essentially, they had issues rating Mortgages and their derivatives mostly, due to the reasons you spoke about in your housing bubble section.

[@MegaHugro]

1:42 "Oh, it's surely a gov't entity, because only the gov't would be objective enough ..." I'm gonna be nice and not write my opinion on that statement.

[@scottwilson4798]

MegaHugro government - that entity oh so well known for its impartiality and objective reason

[@jonschweer7494]

Agree, such idea is the epitome of . . . NAIVETY!!! Government = General Screw up!!

[@rodrigog.c.9407]

These videos are amazing. There's room for improvement in the aesthetics but other than that they're very eye opening. Thank you for sharing this knowledge for free.

[@InIt2winIt247]

Backhanded compliment!

[@SuperJhuffman]

AIG had a AAA rating. This is why they attracted executives who were skilled at credit default swaps.

[@observerbigbe7786]

Thanks dude much appreciated

[@WizzRacing]

The removed Glass\Steagall in 1998 In the nineteenth and early twentieth centuries, bankers and brokers were sometimes indistinguishable. Then, in the Great Depression after 1929, Congress examined the mixing of the “commercial” and “investment” banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions’ securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass Steagall Act

[@kuranescelephia1823]

Credit Sussy

[@prakash2118]

Learning finance from you makes it very easy. Thank you sir🙏

[@GermBrit]

Great work on this video. You make everything so easy to understand.

[@Prophetess7]

If you still don't understand it you probably need to check out Credit Default Swaps 2.

[@ask230]

9:55 The insurance companies don't have to put any money aside for defaults?!? TOTALLY FALSE. Bond insurers are required to set aside reserves against expected losses from bond defaults, just as banks do against loan defaults. This is overseen by federal and state regulators. And if there is a default, the insurance only pays the coupon payments as they are missed. The principal is not accelerated. And the issuer is still liable for the coupons at a later date. The insurance company is only responsible for covering the coupons while they are missed. That doesn't mean there isn't much to be improved upon when it comes to bond insurance reserve rules, or bank reserve rules for that matter. But to say there is no collateral is technically true but misleading in substance.

[@blackmagick77]

"Only the government can be objective enough" Thats a pretty good joke!

[@kevinrandalrulach]

Great video. Well explained..

[@farmboycarl]

11 minutes? Here, I'll save you 10 of them. A credit default swap is a bet that whatever it's written against will fail. Since 2001, 50 Trillion dollars worth of Credit Default Swaps were written against nearly every mortgage in America. Now ask youself, do you think the Wall Street men who invented these instruments (and bought them) might have an interest in seeing your home values fall? -Think about that the next time you notice banks are doing nothing to discourage strategic foreclosures.

[@samcushman4738]

Here 10 years late but great point.

[@macallanvintage]

The credibility of CDS depends on the Credit Rating. How ethical, honest and accurate are the ratings agencies?

[@epicaitales99]

Best lessons ever!

[@canopeaz]

If you are a corporation that wants to borrow money, you have to hope that Moody's is in a good mood.

[@Kindafu]

Simone, have you ever heard of an "allowance for bad debts"? I think it is implied that that's what AIG would need to set up. Of course the wouldn't pledge every asset.

[@lordsoros2666]

An allowance for bad debt is a valuation account used to estimate the portion of a bank's loan portfolio that may ultimately be uncollectible. Lenders use the allowance for doubtful accounts method because the nominal value of a bank's total loan balance is not the actual balance that is ultimately collected, since a portion of the loans may default.

[@RohitPant04]

Came here after watching the documentary - "Inside Job".