Credit default swaps

If you think about it, you can’t go out and insure my house against fire because you do not have an insurable interest, as they call it in the trade. Because once you insure my house against fire and you may decide that dropping a few matches around my lawn might be a good idea. And credit default swaps, if you don’t own underlying debt and you buy a credit default swap, you have an interest in that place getting into trouble. When a lot of people have an interest in a place getting in trouble, they may start putting out misleading statements about it. I mean, if you were short the stock of a bank, and there wasn’t any FDIC, you might go out and hire 100 movie extras to stand in front of that bank. And in effect, you would create your own reality. Now buying credit default swaps and talking about them and causing the price of credit default swaps to go up creates its own reality to some degree.