Credit default swaps morphed from loan insurance into speculation on borrowers’ default

Evidence

At the same time, hedge funds, whose primary function is insurance, became vehicles of profitable risk endorsement for the powerful, while the derivative emerged as the riskiest and most sophisticated form of insurance in securities trading. The credit default swap, the notorious financial instrument implicated in the credit crunch of 2008, was originally an insurance against borrowers defaulting on their loans, before becoming a speculative device on borrowers’ inability to repay those loans (Mazzucato 2018). The post-2008 bailouts highlighted the great importance of such insurance for capital but also the corresponding mounting insecurity for society writ large. — Aris Komporozos-Athanasiou, Speculative Communities, 275

The credit default swap, the notorious financial instrument implicated in the credit crunch of 2008, was originally an insurance against borrowers defaulting on their loans, before becoming a speculative device on borrowers’ inability to repay those loans (Mazzucato 2018). — Aris Komporozos-Athanasiou, Speculative Communities, 421

Categorization

• XREF: The CDS transformation from hedge to speculative bet on failure is a canonical instance of the migration of speculation into new domains.
• SHARE: Worth sending to anyone who works on the 2008 crisis or derivatives — the ‘insurance that became a bet on default’ one-liner.
• CANDY: A genuinely tweetable irony: the instrument that crashed 2008 started as insurance against default and became a bet on it.
• corroborated: 2 independent passages support this claim — Aris Komporozos-Athanasiou, Speculative Communities: Living With…, 275; Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 421