The use of derivatives to lay off and buy credit risk can also obscure sources of credit exposure.
So there is no incentive to shift credit exposure into the insurance company.
In short, the Bush Administration's economic game-plan for the summit seems to envision sizeable new credit exposure for the U.S. taxpayer arising from Soviet commercial risk.
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"We believe any broker could befall the fate of Bear, which had no more credit exposure issues than the other four, " says David Trone, an analyst with Fox-Pitt Kelton.
Credit-default swaps can be bought as protection against the default of a bond or loan, or they can be sold to create some income in exchange for guaranteeing a credit exposure.
Originally conceived as a means for banks to reduce their credit exposure to large corporate clients, CDSs quickly became instruments of speculation for pension funds, insurers, companies and (especially) hedge funds.
Indeed, President Bush went considerably farther than other Western leaders in proposing that there be three firm preconditions met before U.S. taxpayers were obliged to assume new credit exposure associated with aiding the Soviet Union.
Insofar as Germany's leading financial institutions refused to make such loans to the non-creditworthy Soviet Union in the absence of 100 percent government guarantees to cover the transactions, the German government and taxpayers now find themselves the nation holding the bulk of non-performing credit exposure with the former Soviet Union.
He is chairman of the board's management development and compensation committee and also sits on the board's corporate governance committee and its finance committee, which oversees policies for managing credit and risk exposure at the firm.
The plan, which Buffett floated to the companies last week, would effectively give the Omaha billionaire control over the companies' good books and leave them to deal with the bad stuff: credit-derivatives exposure that threatens to swamp their over-leveraged capital bases.
How is any U.S. taxpayer credit and commercial exposure to the USSR justified, given the urgent capital and trade requirements of South and Central America, Africa, Eastern Europe and other countries many of which have already made the transition to democracy and market oriented economies?
Before the monolines ran into trouble with exposure to credit derivatives and structured products in late 2007, they enjoyed a robust business insuring municipal debt.
Similar practices also caused massive systemic exposure to credit default swaps (CDS), as traders bet on credit defaults without holding any of the underlying debt obligations.
The announcement capped days of speculation about O'Neal's future as chief executive of Merrill , which is reeling from its outsized exposure to credit derivatives and subprime debt.
As recently as last fall, Wachovia was seen as a potential savior, particularly for Merrill Lynch, which is said to have approached it about a merger as the losses mounted on its exposure to credit derivatives.
The announcement capped days of speculation about O'Neal's future as chief executive of Merrill (nyse: MER - news - people ), which is reeling from its outsized exposure to credit derivatives and subprime debt.
Forcing bond insurers to hold exposure to credit derivatives while ceding good liabilities like municipal bond insurance would swamp their already over-leveraged capital bases, but save municipal bond investors, taxpayers and local governments from further losses, Spitzer said.
The industry is waiting to see whether banks will pull together and bail out some of the biggest bond insurers, which have been reeling because of their exposure to credit derivatives that have swiftly declined in value, potentially triggering insurance payments that would overwhelm their capital bases.
World Acceptance funds itself through lines of credit from Wells Fargo and Bank of America, so those banks already have exposure to consumers with lower credit scores, who pay higher interest and pose a greater risk of default.
But, apparently, no Wall Street analyst ever looked into whether U.S. banks had exposure to European credit and were at risk.
Business at the investment banks has certainly slowed in the last six months, apart from the problems with exposure to the credit markets.
The moves, days before the Feds scheduled meeting Tuesday, smacked of desperation to many investors, stirring fear worldwide that other banks with sizable exposure to troubled credit markets could also implode.
Against a backdrop of low interest rates that are likely to stay that way for several years, I continue to recommend exposure to more credit-sensitive areas of the fixed income market.
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He recommended their investors begin scaling back on their exposure to global credit, which has been largely positive both in capital gains and, for foreign credit, yielding better than Treasurys and Bunds.
American International Group shares dropped nearly 6% Thursday on speculation it faced potentially large write-downs of investments in credit derivatives as well as exposure through its financial products group, which sells bond insurance.
Unlike most players in the financial services arena, Visa does not have exposure to deteriorating consumer credit.
In addition, third parties with no exposure to the particular credit risk can bet on whether the Greeks will default.
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Fears are now focusing on a potential second credit crunch, triggered by the exposure of banks across Europe to Italy's huge debt.
Continued pressure on its capital levels, however, because of its exposure to rising consumer credit costs, leveraged corporate loans, off-balance sheet conduits and structured products, will force him to seek new capital sooner rather than later.
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