The Truth about Credit Default Swaps and the United States Financial Crisis
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Authors
Veneri, Ryan M.
Issue Date
2011
Type
Thesis
Language
en_US
Keywords
Alternative Title
Abstract
The profound events of 2007 and 2008 revealed fundamental flaws in the U.S.
financial system. Unlike previous dips that are an intrinsic part of a free market
economy, the catastrophe of the current financial crisis has substantially affected nearly
every citizen and community across the U.S. It is of the highest priority to identify these
fundamental flaws in order to prevent further recession in the U.S. economy.
Some scholars and economists have blamed credit default swaps (CDSs) for the
near collapse of the U.S. financial system. However, this argument oversimplifies the
true nature of the events prior to 2007. Human action and inaction in regards to the
housing bubble and managing risk created an unprecedented amount of volatility in the
global financial system. The use of CDSs prior to 2007 exacerbated the financial crisis;
however, they are not the source.
CDSs have proven to be an effective risk management tool that facilitates the
availability of credit throughout the financial system. In an attempt to reform the U.S.
financial system, policymakers have singled out CDSs for more stringent regulation.
While some of these regulations will provide a better infrastructure for transactions,
other provisions will restrict the availability of credit. In terms of the global economic
recession, it is of paramount importance that individuals and institutions have access to
credit. The temptation for more stringent regulation will not stimulate the economy out
of recession. Policymakers need to create a better regulatory framework that allows
derivatives such as CDSs to enhance economic welfare.
Description
iii, 30 p.
Citation
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License
U.S. copyright laws protect this material. Commercial use or distribution of this material is not permitted without prior written permission of the copyright holder.