Can you explain Credit Default Swaps?

@Mbrcatz. My question refers to Credit Default Swaps not cert. of deposit. so how does that change situation?

• I can't choose best answer because I'm not at level 2. The main thrust of question is, since BK's have underwritten the CDS (credit default swaps) they don't have the $$$ to pay the $32 Trillion. So how do they duck that, or do we have another "bail out" or global economic collapse?

• Answer:

  Neither. They don't duck that, and there's no bailout. The "investment" of the default, is a LOSS to the bank. Any deposit that an individual has at that bank - NOT INVESTMENT, just DEPOSIT, is guaranteed through the FDIC. The bank CAN go bankrupt - we've seen a lot of that the past couple years, but the depositor's funds are guaranteed through the FDIC. Of course, this only applies to USA banks, which is why there's some major concerns about global financial stability. I don't think there's enough money in the USA to bail out the rest of the world (not that it might stop the politicians from trying). Some countries are more stable than others, of course . .. but any country that uses the Euro, is bound to be in for a rough ride.