Rethinking CDSs

Regulation

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There was a time when credit default swaps (CDSs) were the darling of the over-the-counter derivatives world. Lauded as an efficient means of spreading risk among market participants, as well as providing much greater price discovery than what is available in the bond market, credit derivatives notional volumes grew exponentially from just $3.58 trillion at the end of 2003 to a whopping $54.6 trillion by June 30, 2008.

However, following the conservatorship of Fannie Mae and Freddie Mac, the

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