In 2007, the total value of an exotic form of financial insurance called Credit Default Swap (CDS) reached $67 trillion. This number exceeded the global GDP in that year by about fifteen percent. In other words – someone in the financial markets made a bet greater than the value of everything produced in the world that year.
What were the guys on Wall Street betting on? If certain boxes of financial pyrotechnics called Collateralized Debt Obligations (CDOs) are going to explode. Betting an amount larger than the world requires a significant degree of certainty on the part of the insurance provider. What was this certainty supported by?