According to an oft-used analogy, buying protection via a credit default swap (CDS) is like holding fire insurance on a neighbour’s house – a comparison used by the market’s critics to claim it encourages the financial equivalent of arson.
Traders always rubbished that idea but then, in December last year, Blackstone Group’s GSO Capital Management offered favourable financing to New Jersey homebuilder Hovnanian on condition the company default on a small portion of debt. GSO will receive
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