Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Prior to 2008 the market for US Treasury CDS had not existed. What would have been the point of insuring the risk-free asset class on which the entire global financial system rested? In the wildly improbable event of a US default, the general destabilization would be such that it was unclear whether any private financial entity would still be in a position to act as a reliable counterparty. Who would be left standing to pay out on insurance against the end of the world? Nevertheless, having first come into existence during the turmoil of 2008, when it seemed that Fannie Mae and Freddie Mac might fail, in the course of 2011 the niche market for CDS on US Treasurys sprang back into life. In the last days of July just over a thousand contracts were outstanding, with spreads running to 82 basis points. It was a fraction of what investors in Greek debt paid, but it was astonishing that the market existed at all.

Yess, and a silly one