Credit Default Insurance
Your friend lives in a garage somewhere near Baltimore. That would be a pretty good indicator that he isn’t very good with his money and finance. However, he is trying very hard to improve his financial lot, so he reaches out with an idea. He wants to bet you 10-to-1 odds that the Baltimore Orioles will win the World Series next year.
He wants to put up $1,000, which means you’d owe him $10,000 if the Orioles were to win. But since they're the Orioles, you can safely take this bet and know that this terrible baseball team isn’t going to get out of the Wild Card round of the playoffs.
However, you’re worried that your friend who lives in a garage won’t be able to pay you back when the Orioles lose. So, you reach out to someone and ask them to secure this debt. You’re asking for insurance from your friend’s debt.
Now, that product doesn’t exist on gambling debt. But on a large commercial mortgage, for example, a lender might want to reduce the chance of losing a $1 million loan by purchasing credit default insurance. They will pay a third-party premium to ensure that the other firm pays off the loan if the borrower defaults.
Credit default insurance agreements are typically default swaps, return swaps, or any other guarantee that frees the lender from the risk, and ensures they will still receive payment should that borrow default.
Let's play ball.
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Finance: What is the Credit Rating Agenc...4 Views
Finance allah shmoop what is the credit rating agency reform
act of two thousand six otherwise known as crack are
out out something like that All right yeah that's How
the real pros said anyway this act was meant to
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and dartboard should not be involved in making up are
you know coming up with corporate credit ratings Well the
law was ironically enacted in the hope that we would
avoid nightmares like the subprime mortgage crisis that almost brought
down the finances of while the entire country in world
And yes it worked in the same way that a
scale works in an embarrassing episode of the biggest loser
The idea was that the big three agencies moody's s
and p and fitch were colluding with each other and
raiding every security as a okay sort of the same
way wall street cell site analysts were leaned upon in
the nineties by bankers who paid them to rate every
company of strong by so that the companies would favor
the investment banks when doing lucrative secondary offerings and other
personal wealth management services for the founders and senior executives
Newly ridge from you know aipo booty The big three
then produced a product that wasn't reflective of the real
risks inherent in the marketplace Basically they had been labeling
pink slime and hot dog meat as great a sirloin
Yeah well the act made it much easier for smaller
firms to compete for business by doing high quality research
and not being afraid to give bad ratings tow bad
money butchers will The credit rating agency reform act of
o sixth gives both businesses and the government the tools
they need to fight off the shady hucksters of the
world And make sure the pink slime never you know 00:01:55.443 --> [endTime] such a cz your plate financially
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