Hey buddy, want to buy a credit default swap?

You might have read about AIG, the insurance giant who bet big on credit default swaps and lost. It seems like the guys who bet your rent money on a losing nag now want you to cover their bar tab, too, and these guys insist on nothing but top shelf.

Now, you may be asking
1. "What the fuck is a credit default swap and what does it have to do with me?"
2. "When do we get set up Dr. Guillotine's famous blade in Time Square?"

Let's take question number 1. Credit Default Swaps are these miraculous things invented by financial whiz kids that always make money. Except when they don't.

Think of it this way. I'm A Big Motherfucking Corporation (ABMC, Inc.) and I issue bonds to raise money. My bonds have always paid off because I'm ABMC, Inc. and I've never defaulted on a bond in my corporate life.

So you are A Big Motherfucking Bank (ABMB, Member FDIC) and you buy my bonds, expecting a solid 5% return, no risk. But just in case, you want some insurance because hey, you never know.

AIG says, we'll insure that bond. It's a hell of a lot better way to make money than insuring lives or homes or cars because we pay zero money out and get premiums all day long. Besides, the chances of ABMC going toes up are next to zero.

Other people see AIG raking in all this easy money and decide they too want in on the action too. It's a hell of a lot easier than actually working, or making shit. You just buy and sell CDSs and roll around like Scrooge McDuck in all that lovely dough.

By the end of 2007, Credit Default Swaps are doing roughly $60 trillion in business around the world. Unfortunately, a lot of those bonds being insured were big old balls of sliced and diced subprime mortgages. Shiny on the outside, rated triple-A by the ratings brains, but on the inside they were, of course, big slimy wads of crap.

Things start to go south. Mortgages are revealed to be built on very shaky foundations and, because I have invested in other people's bonds, suddenly, I don't feel too good. For the first time, my corporate corpus is looking more like a corporate corpse and I can't pay on my bonds, the ones that you, Mr. ABMB, bought from me.

But no worries, you just ask AIG to pony up on their insurance policy. In fact, all your banker friends are asking AIG to fork it over and the whiz kids at AIG respond from their summer homes in the Hamptons with "Pay? What is the meaning of this word pay?"

AIG looks into its capital coffers and finds it has no way to pay. The dominos start to tumble and AIG, who holds so many of these CDSs from all over the world starts to bring everything crashing down, inlcuding the bank where you have your savings, the stocks where you have your investments, and your company where you have your job.

The government steps in and pays the giant AIG a lot of money so it doesn't collapse and crush all the little people scrambling to get out of the way. AIG says thanks and gives a chunk of that money - your money - to pay bonuses to the same fucks who dreamed up complex financial shell games like CDSs and subprime lending in their MBA-induced, easy-money fevers.

This is like your brother Lenny losing his mortgage money at the track, you give him your mortgage money to help him out, he loses that money too, you lose your house and the next time you see Lenny he's driving around in a brand new Porsche. Fucker.

Which leads me to question 2. Sorry, I don't have an answer for that.