CDO - Collateralized Debt Obligation
CDS - Credit Default Swap
Not many Americans are familiar with these financial terms and probably didn't learn about credit derivatives in high school. WBEZ is a Chicago Public Radio station that runs a program called This American Life. Last weeks episode was entitled "Inside Job". They did some investigative journalism to uncover some of the risky investments that became wildly popular just before the economy crashed. Despite the risk, banks still made money in the form of fees each time a deal was made so they kept making more risky deals. Fair Housing laws allowed people take out mortgages even if they were not likely to pay it back. Forward thinking investment firms like Magnetar Capital saw the writing on the wall in 2006 and placed some strategic bets.
Are the government and wall street equally to blame for creating this economic disaster? Is the Stimulus Package working?