U.S. targets credit-default swaps
TEXT OF STORY
Bill Radke: The U.S. Justice Department is reportedly investigating
a multitrillion-dollar financial market in London. Bloomberg says this morning the department is investigating those complex securities known as credit-default swaps. From London, Marketplace’s Stephen Beard is here to explain.
Stephen Beard: The Justice Department has apparently served notices on a company called Markit. No comment yet from the government, but we do know that Markit is jointly owned by some of Wall Street’s biggest banks. And that it’s involved in providing data about Credit Default Swaps.
The CDS is a kind of bet on whether or not a company will default on its debt. The market is huge, worth an estimated $62 trillion. But much of the trading doesn’t take place openly on a regulated exchange.
Andrew Hilton of the CSFI think thank:
Andrew Hilton: There is a feeling that the credit-default swap market was one of the factors in the rapid expansion of the financial crisis and its transformation from a financial crisis into an economic crisis.
He believes that if the Justice Department has launched this probe, it could be the start of a regulatory crackdown on CDSs and other complex financial products.
In London, this is Stephen Beard for Marketplace.
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