They explain that a credit default swap involves two parties engaging in a transaction and a third being engaged to insure one side's payments. There are a couple of problems:
- This isn't insurance in the usual sense of the word
- It's possible to buy this insurance without being a party to the original deal
- It caused multiple parties to be exposed to the defaults of otherwise independent companies, because these parties are selling credit default swaps
- Many companies both bought and sold credit default swaps in the same issues, but at different prices, and pocketed the difference, ignoring the fact that they were still exposed to a different kind of risk: the risk that their counterparty would default on the credit default swap they were owed.