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Investment Analysis Clubs / Macro Economic Trends and Risks


Subject:  Re: Will the Bailout Plan Work? Date:  10/5/2008  12:15 PM
Author:  WendyBG Number:  257737 of 484807

<Would you lay out the consequences of a CDS cascade? All I can grasp is that it would be a Really Bad Thing.>

A CDS cascade would be a Really Bad Thing. Great way to put it.

A CDS (Credit Default Swap) is a private, unregulated insurance contract.

Let's say that I buy a bond, because I want the interest payments. Looking at Fidelity, today, here is one choice.

GE CAPITAL INTERNOTES 5.00000% 03/15/2017 FR
CUSIP 36966RW69

Coupon 5.000
Yield to Maturity 7.45%
Maturity Date 03/15/2017
Moody's Rating AAA
S&P Rating AAA

Wow, that looks like an excellent yield, especially given the high rating. But, even before the financial crisis started, there is always a possibility of default.