Why is Illinois Using Credit Default Swaps?

You remember credit default swaps, right, the financial "instrument"
that pricked the housing and economic bubbles?
Illinois is "enjoying" the same kind of debt bubble that led the nation
into its current financial mess. I call it a debt bubble because if all
the borrowing that the state does to keep it afloat ever becomes no
longer possible, if Illinois defaults on the bonds it has sold to
millions of investors, Illinois is finished. Kaput.
It might surprise you that under girding Illinois' massive debt are
credit default swaps (CDS), the same financial instrument that had
turned a prosperous national economy into hash. In short, the state's
borrowing of hundreds of millions of dollars is getting a lot more
expensive, and the chances of an Illinois debt bubble bursting
increasing.
CDS are the same kind of insurance that AIG sold to guarantee that the
mortgage backed investments wouldn't fail. The only thing it guaranteed
was utter chaos when homeowners and buyers (investors) lost confidence
in the value of housing.
Continue reading at Chicago Daily Observer

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