Credit default swaps escaped insurance reserve requirements by being misnamed swaps

Evidence

13. A CDS is called a swap but is actually quite different from most swaps. It was called a swap mostly to avoid regulations that would kick in if it were named what it really is, an insurance contract. Insurance requires reserves to be set aside, but swaps don’t, which was a huge part of their problem. — Mark Blyth, Austerity, 707

Categorization

• DEFINE: Clarifies what a CDS actually is — an insurance contract disguised as a swap.
• XREF: Connects to the broader financial-crisis causality literature and to how regulatory arbitrage enabled the 2008 crash. — connects to: Derivatives inverted from insurance into engines that increase volatility exposure. — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 91; Swap spreads reveal arbitrage opportunity between swaps and equivalent bond positions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 980

Broader Connections

• Derivatives inverted from insurance into engines that increase volatility exposure. #expands (0.85) — Aris Komporozos-Athanasiou, Speculative Communities, 91
• Swap spreads reveal arbitrage opportunity between swaps and equivalent bond positions #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 980