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RE: Are Canadian Banks INSOLVENT? If People Withdrew Their MONEY, Is It GAME OVER!?
I know how the derivatives work as far as stocks and options but how are the banks using them? Are the Canadian banks better or worse than the US ones?
Credit Default Swap is like insurance bet on some bond, mortgage backed security or credit instrument default. Investment Banks would act like a bookie taking bets and if nobody defaults that is great extra income to pay the big bonus to executives. The potential payout is usually many times the banks assets so if a lot of these bet go sour banks will go bankrupt, at that point all the money the banks spend lobbying will pay off as it is bailout/bailin time.
It created the Bailout of AIG in 2008
That makes sense. The banks buy cheap insurance and the investment banks make easy profit until things go against them.
Canadian banks issues MBS's! BMO issued AAA rated MBS's last year.