Credit Default Swaps Do Not Insure U.S. Debt

Suppose an insurer in New York sold insurance against a nuclear bomb being dropped on the city. Is this insurance against nuclear war?

As a practical matter, only a fool would think that this covered his financial bases. If there were actually a nuclear bomb dropped on New York, this New York based insurer would almost certainly be destroyed along with whatever it had insured.

This is the same deal as with credit default swaps on U.S. debt. If it turns out that the United States defaults on i...