Reuters – On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps — complex derivatives originally designed to protect banks from deadbeat borrowers — are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
