A credit default swap that is covered by a bundle of other credit default swaps. – The buyer of such securities often knows little about the original protection buyer and protection seller (risk taker); the risk of loss is correspondingly high. Before the subprime crisis, even cubic CDSs were offered. Until the beginning of the subprime crisis, common square CDSs often contained up to 200 securitization papers, which were combined into a new security. Common until then were blends of about sixty percent securitized low-quality home equity loans, twenty percent commercial real estate, and ten percent corporate loans; the remainder were in various categories such as vehicle loans. – Corresponding descriptions of the square CDSs, formulated in subtlest English legalese and, therefore, very difficult to understand or perceive, sometimes ran to 300 pages and contained many clauses that most buyers of the papers – including many German institutions – did not read, understand or take seriously. Almost always, they relied exclusively on the rating given by a rating agency. – See Absence Capitalism, Financial Architecture, Collateral Crisis, Lottery, Double, Monoliner, Option, Composite, Papers, Toxic, Product Registration, Reintermediation, Repackaging, Securitization, Packaging Art, Understandability.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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