Basics of Credit Derivatives

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Quotable quotes on Credit derivatives

Archived on 5th Feb., 2002
"It (credit derivatives) is like Russian roulette. It doesn't make a difference if there's only one bullet: If you get it you die".

- A commentator about risks of investing in credit derivatives, quoted in an article in 1993.

Archived on 12th June, 2001
"Collateralized loan obligations and collateralized bond obligations are structured so that you get prepayments. You don’t really see a lot of defaults, but people can nevertheless lose money. Defaults aren’t the criteria for risk in this market. I’m not a doom-and-gloom scenario guy, but let’s face it—we’ve been living in a very nice world for seven years and that world is coming to an end". - Edward I Altman

"These derivatives represent a natural extension of the market for similar products that 'unbundle' risks, such as certain interest rate and foreign exchange products. When used properly, credit derivatives can help to diversify credit risk, improve earnings, and lower the risk profile of an institution."
-US Office of Comptroller of Currency

"The new impetus for us as investors is to be balance-sheet suppliers. We’ve detected a rise in the pricing of total-return swaps in which we provide a balance-sheet rental. The trade is simple: We buy an asset and then transfer all of the credit risk of the asset back to the bank that sold us the asset. For the counterparty, it’s a way for it to take the risk of an asset but not have to fund it."
- Carl Schuman, managing director for credit derivatives at Westdeutsche Landesban on why his bank invests in Credit derivatives