Bill of Exchange

“In Bagehot’s day, the credit default swap traveled with the bill, and the entire package was the asset acceptable for lender-of-last-resort discount at the Bank of England. Since Bagehot’s day, we have learned the value of extending discount eligibility to long term bonds—no one today argues “bills only”.”
perhaps if we continued trading CDS as a part of a bill rather than a separate instrument, AIG debacle could have been avoided. Click here for an interesting working paper on Credit Default Swaps, and trust me it contains an insight seldom discussed.


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