"Hey wait, wait, wait, AIG. You only have 100 billion dollars in assets, but you have insured 1 trillion dollars of other people's debts!" Lmao I laughed so hard at this.
In the financial sector as a buyer do your research don’t go with the flow and do your own numbers and make your decision because somehow the lawyers found a way to diversify liability and at the end no one is at fault it is part of the game unfortunately
You are as an investor, as a free-market participant. You are supposed to be a sane person - you either take into consideration Moody rating or disregard it. You are a private person making a decision with you money. When you make money it is your private profit, when you lose money it is your private loss. What is important that if something goes under, government and the FED are not supposed to step in and save your private losses with the taxes or inflation money.
watching this in 2022 and was watching the big short but I left it in the middle as I was confused so I ended up here xd I realised this vid was 11 years old that's why its in 240p lol
actually i was scare to learn about CDS but the way you explained it was so easy to understand, thanks a million.KEEP THEM COMING we are paying close attention
I'm doing research for an author and have needed to learn the entire sphere of the financial lexicon from scratch. This video is the best explanation on CDS's BY FAR that I have seen
I have been in the fin markets since '73. I traded since 1987 in total OBIs so I got my scars. I have tried to explain it in layman's terms to my friends, found I had to back track often (and lost them in the story) but so far your C-D-1 made it clear to them. I will hit them tonite with C-D-2. Thanks for taking the work out of my hands.
Sal....u are BRILLIANT! This was so clear. I totally understand CDS now. I have searched on the net for examples of what the heck they are...and you explained it so clearly here. Right...now onto the next video (I've watched about 5 today - they are addictive!)
Absolutely love the khanacademy. Just when I though derivatives exam seemed pretty impossible, it all of a sudden all makes sense. God bless this lectures ;) Can you come and teach at our University?
Great job! Since, now even Greenspan admits that, markets are not self regulating. Who should we look to to set rules and regulations to govern these financial insturments?
thanks for this tutorial ! I have started to do research into how the banking/financial system operates & as soon as I came across the point if CDS's I felt like I was missing something - because it made very little common sense ! What I am seeing though, is that these systems are not based on common sense and what is best for all but rather what makes money for specific parties for limited amounts of time - no self-responsibility, no concern for the impact on others ! WTF?!
Lol this is a productive day for me. First the awesome Matt Damon narrated documentary, Inside Job, the the big short and then these vids. I love knowledge. ;)
If that is the structure, if I am Corp A or B with a low rating, I would just default entirely because I know that someone’s backing me up in case I default lol. If that’s the case, does it shift the liability from Pension fund to AIG?
There are multiple issues with credit rating companies. 1. They rate the company situation at the present for a debt to be paid 10+ years from now; no commitments on any sides. 2. They are paid by the company being rated. 3. They have no liabilities if rating degrades over time. 4. A company's rating can be dramatically downgraded in 2 years from AAA to BB, for example.
Simplest way to think it is buying a credit default swap is like insurance and you pay a monthly premium to the bank. In return the bank promises a payout if something happens, in this case thousands of mortgage backed securities failing and the banks payed out big time to the 3 big shorts.
The Government qualified to “rate” risk of investments. LOL $34,000,000,000,000.00 federal debt and the only way to eliminate is default or print. Rate the results of doing either or some of both. 🆘
These videos are amazing. There's room for improvement in the aesthetics but other than that they're very eye opening. Thank you for sharing this knowledge for free.
so a credit default swap is an agreement/contract? and in the example used in this video the agreement is 10 years in this case so after 10 years the contract wears off? or is a credit default swap a product? is it an agreement or product? meaning if its a product, someone buys a credit default swap, can they sell it later on? lol
Good explanation. Yet, do you agree about what some market commentators argue that unless there is a strict control of these credit derivatives what happened few years ago in 2007 may happen again?
Low interest rate is the problem. Now all these pensions can’t pay their obligations with interest income so they have to go out their ways to fund the payouts. No wonder Robert Kiyosaki wrote the book
What a great video explaining what I already knew but couldn't diagram out, thank you very much Sal, would love to be able to share this video on our UA-cam channel
So does the AIG type firm just assume that the lower rated corporation won’t default in 10 years assuming a 1% interest rate? Cause if they do then they’d have to insure the full $1b. I don’t see how the risk is less for AIG compared to the pension fund, it’s more
Just interesting. In movie ''The Big Short'' - what did they buy to make profit? Bonds from AIG or bonds from Pension fund? I don't get where they make money?
So what if insurance companies are heavily regulated to check their solvency in daily bases Will that be a relieving to this business model (or the charter ecosystem)? I mean isurance companies have reserves for each underwrited risk and each insurance policy/coverage. Also, they have reinsurance treaties from A+ reinsurers.
As a retail trader could you take out CDS on specific corporate bonds even if you have no insurable interest? Pure speculation from distance so to speak...
Question: I will use your examples to hopefully explain the question properly... Could a fund (CA pension fund) buy multiple insurance policies or CDS with different insurance corporations? Meaning if they loan $1B to Business A and insure that with a CDS of 1% of the 10% premium they are earning from Business A. Then do exactly the same thing with another insurance company (thus losing 2% of their 10% premium) doesn't this practically double the amount they have loaned should Business A default? As they will receive the $1B from insurance A, then another $1B from insurance B? Hope this question makes sense! Thanks!
So were these funds limited by the rating companies and their ratings, or were they limited by basel II ? which one was the bigger factor in why they sought after the swaps
I'll explain it better. It's like if you're in college and you have a 400 level math requirement that only smart people get into and they grade on a curve. And then there are kids that failed algebra 2 that aren't allowed in the class. You know that you're going to fail this 400 level class with about a 30% as a final score. But the 400 level class grades on a curve so you find a way to enroll all of these Algebra 2 failees into your 400 level to score -20% because they robbed and beat up the professor on top of failing. You use the trauma of your professor dying after being beaten to death in class to talk the school into giving you an A for the class. That also explains how the origin story of how the people working at the bank got their job.
What I want to know is that what if AIG default or one of the insured default on their interest payment? Now AIG have to pay back the full price they promised to insure?
Who has a claim on the assets of the company if they default on the debt? I'm assuming it's the pension fund. So presumably they will be senior recipients of assets if the company liquidates from bankruptcy
Is it possible for Corp A to take out its own insurance on the $1B at the same time Pension fund buys the CDS? If so what happens in the event of a default?
You make it sound like the credit agencies couldn't do a good job. It is true they blew the MBS and CDO markets. However, they were quite accurate on ratings for everything else. Essentially, they had issues rating Mortgages and their derivatives mostly, due to the reasons you spoke about in your housing bubble section.
came right here after watching big short
+Abhishek Rattan all over your keyboard??
+General Sarasota hahaha...... nah not literally :)
same bro
Thats a nice shirt. Do they make it for men?
Loool same
Not for nothing this is great. I needed this as I'm reading "The Big Short"
+Durandisse84 Durandisse I too came from The Big Shor
+Durandisse84 Durandisse Me 3
+Durandisse84 Durandisse same here
Same here!
Same here lol
"Hey wait, wait, wait, AIG. You only have 100 billion dollars in assets, but you have insured 1 trillion dollars of other people's debts!"
Lmao I laughed so hard at this.
Wasn't as funny in 2008...
In the financial sector as a buyer do your research don’t go with the flow and do your own numbers and make your decision because somehow the lawyers found a way to diversify liability and at the end no one is at fault it is part of the game unfortunately
@@utubewatcher806 By his example AIG is leveraged at 10:1, but back in 2008 some banks were leveraged 30:1. Talk about insanity!!!
There's something shady going on...
fyi only...How MultiBank Group evolved into one of the largest online financial derivatives l.linklyhq.com/l/2JS #banking #finance #derivatives
love how you dont waste time with unnecessary prologue and get right to the point!!
Clearly understandable, very clear & precise! Love it! Just realized it was posted 15 yrs ago... truly an heritage!
Saw the Big Short, now I'm reading the book, and I needed this video to understand it! Thanks Sal!
Well who the hell is rating Moody's ability to Rate!!!
+Durandisse84 Durandisse No one. Same with Standard and Poor's and Fitch.
Shareholders
Moody’s
You are as an investor, as a free-market participant. You are supposed to be a sane person - you either take into consideration Moody rating or disregard it. You are a private person making a decision with you money. When you make money it is your private profit, when you lose money it is your private loss. What is important that if something goes under, government and the FED are not supposed to step in and save your private losses with the taxes or inflation money.
The US SEC in the US, FCA in UK, SEBI in India; basically your national securities regulator.
This video was published at the perfect time
2020here and still watching this right after watching big short. Gives me straight information regarding the principle of financial fiasco in 2008.
watching this in 2022 and was watching the big short but I left it in the middle as I was confused so I ended up here xd I realised this vid was 11 years old that's why its in 240p lol
actually i was scare to learn about CDS but the way you explained it was so easy to understand, thanks a million.KEEP THEM COMING we are paying close attention
I'm doing research for an author and have needed to learn the entire sphere of the financial lexicon from scratch. This video is the best explanation on CDS's BY FAR that I have seen
It's nice that this video was published right when the Financial Crisis happened 11 years ago.
Wish these old videos can be enhanced of Quality. 14 years later still helping everyone. Thank you guys.
Aged like fine wine
This dude saved me in college for chemistry, Microbio etc. Is there no limits to his brain!?
I have been in the fin markets since '73. I traded since 1987 in total OBIs so I got my scars. I have tried to explain it in layman's terms to my friends, found I had to back track often (and lost them in the story) but so far your C-D-1 made it clear to them. I will hit them tonite with C-D-2. Thanks for taking the work out of my hands.
Sal,
You are so amazing! Thanks for making it easy to understand!
--ExcelIsFun
remember 13 years ago when people would sign off their youtube comments?
@@onion7568 : ) : ) : ) : ) : )
how ironic this was uploaded right in the midst of the housing market crash that's why im here
Just watched "The big short", this is answered my question. Thank you!
I was surprised this video was made 13 years ago. My curiosity started to be solved thanks to that video
This presentation was the most wonderful I have seen! so simple to understand. Thanks a lot!!!
cant believe its 15 years old
Sal....u are BRILLIANT! This was so clear. I totally understand CDS now. I have searched on the net for examples of what the heck they are...and you explained it so clearly here. Right...now onto the next video (I've watched about 5 today - they are addictive!)
Absolutely love the khanacademy. Just when I though derivatives exam seemed pretty impossible, it all of a sudden all makes sense. God bless this lectures ;) Can you come and teach at our University?
Watching this exactly 16 years later - September 29, 2024.
Thank you. Explained in a way I can understand how all this works.
Great job! Since, now even Greenspan admits that, markets are not self regulating. Who should we look to to set rules and regulations to govern these financial insturments?
I'll have to ask my wife :) I think she'd prefer that I stick to recording videos.
Your explanations are very interesting, pls keep on
thanks, now I can get back to watching The Big Short and actually understand it.
Credit Suisse CDS situation has me watching this.
thanks for this tutorial !
I have started to do research into how the banking/financial system operates & as soon as I came across the point if CDS's I felt like I was missing something - because it made very little common sense !
What I am seeing though, is that these systems are not based on common sense and what is best for all but rather what makes money for specific parties for limited amounts of time - no self-responsibility, no concern for the impact on others ! WTF?!
"Pension fund.. Pension Fund.." love it!
Im just watching the big short right now, paused it to come here, thanks for making me feel like im not trying to read hieroglyphics!
Credit default swaps? More like "C'mon, this video rocks!" Thanks for another banger.
Holy shit, from 6:45 to 7:10 Nails it all together guys.... but you gotta be patient and watch from the begining
Great explanation. Thanks for freaking me out.
Lol this is a productive day for me. First the awesome Matt Damon narrated documentary, Inside Job, the the big short and then these vids. I love knowledge. ;)
You are one of the best teachers in the world
If that is the structure, if I am Corp A or B with a low rating, I would just default entirely because I know that someone’s backing me up in case I default lol. If that’s the case, does it shift the liability from Pension fund to AIG?
I didn't know that Khan Academy was this old.
Khan academy is even older than that !
Me watching this video after the US Bonds Treasury deranks from AAA to AA+
There are multiple issues with credit rating companies. 1. They rate the company situation at the present for a debt to be paid 10+ years from now; no commitments on any sides. 2. They are paid by the company being rated. 3. They have no liabilities if rating degrades over time. 4. A company's rating can be dramatically downgraded in 2 years from AAA to BB, for example.
Thank you so much!!!! Tomorrow I am writing a test and I didn´t get the whole thing about Credit Default Swaps... but now, it´s clear!!! Thanks!!!
I thought this video was great. Had no idea how CDS works but now I do. On top of that I also understand the massive risk with this! Thanks so much
Today I “got” The Big Short! 😍
Love you man... Subscribed
This guy is great in teaching us these diffucult subject. Awesome!
EXCELLENT JOB!
this is how this stuff should be explained. dumbed without financial jargon thats meaningless to the layman. bravo.
I love and hate how complicated the financial world is
9:54 "you get insurance, you get insurance, everyone gets insurance!!!!!!"
I like how you convey the context without exploiting their nastiness
Awesome....Ive been trying to understand this and couldnt find any videos that made sense to me, but this video made sense. thanks
you make me understand the world man. thank you
Watch this years ago. But, this video is gonna get popular again in 9 month to a year
Nice explanation! It was easy to understand.
Amazing clarification. Thank you very much for creating this.
I am so angry at those Insurance Companies!
Simplest way to think it is buying a credit default swap is like insurance and you pay a monthly premium to the bank. In return the bank promises a payout if something happens, in this case thousands of mortgage backed securities failing and the banks payed out big time to the 3 big shorts.
outstanding!!!
Thanks Sal!!!
The Government qualified to “rate” risk of investments. LOL
$34,000,000,000,000.00 federal debt and the only way to eliminate is default or print. Rate the results of doing either or some of both. 🆘
These videos are amazing. There's room for improvement in the aesthetics but other than that they're very eye opening. Thank you for sharing this knowledge for free.
Backhanded compliment!
Unreal videos. Good work!
so a credit default swap is an agreement/contract? and in the example used in this video the agreement is 10 years in this case so after 10 years the contract wears off? or is a credit default swap a product? is it an agreement or product? meaning if its a product, someone buys a credit default swap, can they sell it later on? lol
thanks so much. this is such a clear tutorial on what a CDS is..
Good explanation. Yet, do you agree about what some market commentators argue that unless there is a strict control of these credit derivatives what happened few years ago in 2007 may happen again?
Free online education. Must watch videos... Very Cool.
Low interest rate is the problem. Now all these pensions can’t pay their obligations with interest income so they have to go out their ways to fund the payouts. No wonder Robert Kiyosaki wrote the book
imf/nato wealth theft taxation currency is an amazing subject! Article 1 Section 10
Best explanation hands down. Thank you
You are a good teacher my friend
What a great video explaining what I already knew but couldn't diagram out, thank you very much Sal, would love to be able to share this video on our UA-cam channel
I'm always learning new terms in Wallstreetbets.
So does the AIG type firm just assume that the lower rated corporation won’t default in 10 years assuming a 1% interest rate? Cause if they do then they’d have to insure the full $1b. I don’t see how the risk is less for AIG compared to the pension fund, it’s more
watching [the big short] now. good lecture.
You explain it so well
Fabulously explained. Thanks
Learning finance from you makes it very easy. Thank you sir🙏
Excellent! I never truly understood CDS's before this video.
Just interesting. In movie ''The Big Short'' - what did they buy to make profit? Bonds from AIG or bonds from Pension fund? I don't get where they make money?
Wow, this helps a lot. This makes a lot more sense now.
Excellent. Just excellent.
Thank you so much for that. I'm a dummy so I didn't get anything from wikipedia or investopedia. But your video cleared it in once. Thanks a lot!
Thx khan, now I know who to donate of my billions in future :) work hard for ya good ppl. peace lol
Brilliant stuff. had been trying to find reading material on this but kept getting consfused. this is so good! thanks!
So what if insurance companies are heavily regulated to check their solvency in daily bases
Will that be a relieving to this business model (or the charter ecosystem)?
I mean isurance companies have reserves for each underwrited risk and each insurance policy/coverage. Also, they have reinsurance treaties from A+ reinsurers.
the fact that this was posted in 2008, epic
As a retail trader could you take out CDS on specific corporate bonds even if you have no insurable interest? Pure speculation from distance so to speak...
If you are a corporation that wants to borrow money, you have to hope that Moody's is in a good mood.
Question: I will use your examples to hopefully explain the question properly...
Could a fund (CA pension fund) buy multiple insurance policies or CDS with different insurance corporations? Meaning if they loan $1B to Business A and insure that with a CDS of 1% of the 10% premium they are earning from Business A. Then do exactly the same thing with another insurance company (thus losing 2% of their 10% premium) doesn't this practically double the amount they have loaned should Business A default? As they will receive the $1B from insurance A, then another $1B from insurance B?
Hope this question makes sense! Thanks!
So were these funds limited by the rating companies and their ratings, or were they limited by basel II ? which one was the bigger factor in why they sought after the swaps
Thanks dude much appreciated
I'll explain it better. It's like if you're in college and you have a 400 level math requirement that only smart people get into and they grade on a curve. And then there are kids that failed algebra 2 that aren't allowed in the class. You know that you're going to fail this 400 level class with about a 30% as a final score. But the 400 level class grades on a curve so you find a way to enroll all of these Algebra 2 failees into your 400 level to score -20% because they robbed and beat up the professor on top of failing. You use the trauma of your professor dying after being beaten to death in class to talk the school into giving you an A for the class. That also explains how the origin story of how the people working at the bank got their job.
this is great. it totally help me to understand the credit default swaps.
Very useful tutorial. Clear and easy to understand. Keep it going.
What I want to know is that what if AIG default or one of the insured default on their interest payment? Now AIG have to pay back the full price they promised to insure?
Can you back a short by cds?
Who has a claim on the assets of the company if they default on the debt? I'm assuming it's the pension fund. So presumably they will be senior recipients of assets if the company liquidates from bankruptcy
Is it possible for Corp A to take out its own insurance on the $1B at the same time Pension fund buys the CDS? If so what happens in the event of a default?
This is very good and easy to understand
But in an ideal world wouldn’t a double A rating mean AIG DOES have the capital to cover the debt? Otherwise what does double A mean?
You make it sound like the credit agencies couldn't do a good job. It is true they blew the MBS and CDO markets. However, they were quite accurate on ratings for everything else. Essentially, they had issues rating Mortgages and their derivatives mostly, due to the reasons you spoke about in your housing bubble section.
Hey Salmaan, could you please make a video explaining the' big short movie' and the big financial crisis in 2008? Thanks.
no
He already has. he has a whole playlist.