Not everybody knows about credit default swaps. Basically, let's say A issues a bond. That bond is traded in the open market. B can write a contract to C that says "I will pay if A does not pay(defaults)." If A defaults, B would have to pay C. Typically, the amount is the value of the CDS contract minus the recovery rate(how much is received from selling the company's assets).
So why should you care? There is an outstanding notional value of $65 trillion dollars of CDS contracts.
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