Tuesday, July 06, 2010

Ask a kindergartner: What is a loan? If you lend a classmate a dollar, you expect him to pay it back. What is loan underwriting? If that classmate is unlikely to pay it back, do not lend him the dollar.

Explain a credit default swap to a kindergartner? You offer a quarter to the friend of the kid to whom you lent the dollar, if he guarantees his friend will pay you back. A derivatives market? You go to your fellow kindergartners and take bets on whether the borrower-classmate will or won’t pay his debt. It is not that complicated. It should not be that hard to regulate. Read more here - http://ping.fm/350L4

No comments: