Exact(1)
Reset security defaults.
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It is also providing an insurance policy should many of the loans underlying those securities default.
They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted.
By issuing the swaps, A.I.G. was promising to pay these institutions — A.I.G.'s counterparties — if the debt securities defaulted.
To be sure, the $45 trillion in credit default swaps is not an exact reflection of what would be lost or won if all the underlying securities defaulted.
When more of these securities defaulted than the firm thought, they had to pay off all the CDS's and their balance sheet suffered as a result.
If loans in the securities default, Fannie and Freddie take losses, rather than investors.
In the current situation, the new RTC would acquire toxic assets such as subprime, mortgage-backed securities, defaulted loans and foreclosed real estate owned by FDIC-insured institutions.
Credit default swaps were sold as a form of insurance: Buyers — including investment banking firm Goldman Sachs Group Inc. and other major U.S. and foreign banks — paid premiums to AIG, which agreed to pay in event the securities defaulted and to post cash as collateral in the event they were downgraded by Standard & Poor's or other rating companies.
In essence, a credit default swap is a bet that a security will default or lose much of its value.
An analyst who received the lyrics and the videotaped performance subsequently gave a high rating to a security that defaulted the following year, according to the complaint.
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