Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America Highlight

A credit default swap is just a bet on an outcome. It works like this: Two bankers get together and decide to bet on whether or not a homeowner is going to default on his $300,000 home loan. Banker A, betting against the homeowner, offers to pay Banker B $1,000 a month for five years, on one condition: if the homeowner defaults, Banker B has to pay Banker A the full value of the home loan, in this case $300,000. So Banker B has basically taken 5–1 odds that the homeowner will not default. If he does not default, Banker B gets $60,000 over five years from Banker A. If he does default, Banker B owes Banker A $300,000.