Credit default swap (CDS), also known as credit default swap, is one of the most important credit risk mitigation tools for over-the-counter transactions, a financial derivative and a credit derivative. It can be regarded as a kind of default insurance for financial assets. Creditors sell debt risk through CDS contracts, and the contract price is a premium.

The party who buys credit default insurance is called the buyer, and the party who bears the risk is called the seller. Both parties agree that if the default events defined in the contract do not occur (such as the bankruptcy of the debtor of financial assets, the debtor's failure to pay interest on time, the creditor's request to recall the debt principal and demand early repayment, debt restructuring, etc.). ), the buyer will pay the "insurance premium" to the seller on a regular basis. In case of default, the seller will bear the loss of the buyer's assets.

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In 2008, people clearly realized that the American economy was like walking a tightrope in the CDS market, and it was in danger of falling at any time. In September, the US government injected $85 billion to rescue the failing insurance giant American International Group (AIG). This emergency rescue measure also saved investors who take corporate bonds as insurance objects and carry CDS products; In this way, the government's intervention avoided a credit default event.

But Fannie Mae and Freddie Mac, two mortgage giants, were taken over by the federal government in the same month. Many people in the industry believe that the government's takeover of the two companies is a credit default. Investors who hold CDS contracts with bonds (or stocks) of two companies as the subject matter of insurance have the right to claim compensation according to the terms of the contracts.

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