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Understanding the Problems in Credit/CDS
Wall Street’s forensic scientists are out in full force for the post-mortem on this past week’s events in the credit and Credit Default Swap (CDS) markets. A number of conference calls have been organized for CDS directors and senior traders to explain terms such as “correlation trading,” “mezzanine tranche” and “iTraxx 0 to 3% equity.” While a belated education certainly has its value, we should not let it impede the bigger picture of how and why these problems came into being.