Banking on Failure
Speculators’
Use of Credit Default Swaps to Bet on Others’ Misfortune Is Unseemly, Dangerous
Nov.
11, 2011 — Betting on the misfortune of others has an unsettling quality to
it. It just feels wrong. Under our current financial regulatory regime,
speculators freely gamble on businesses failing and countries defaulting. In
addition to its unseemliness, betting on others’ failure poses a grave risk to
our financial system. Drawing on research from Levy Institute scholars Marshall
Auerback and L. Randall Wray, “Banking on Failure” examines how speculators use
credit default swaps to bet on others’ misfortune and the dangers that result
from such activity. This report also proposes policy solutions to mitigate the
dangers created by credit default swaps.