Like many parts of the financial system these days, credit default swaps are so complicated, simple bankers couldn't have created them. They were invented by people like Gregg Berman.
"My formal training is in physics," he says. "I studied experimental physics and nuclear physics before joining finance in 1993."
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"I think Mae West said it very, very well when she said, 'I used to be Snow White, but I drifted,' " says Satyajit Das, a risk consultant who was around when credit default swaps first appeared.
For 30 years, he has worked with hedge funds and bankers all over the world as a sort of a financial hired gun. He saw first hand how what started as insurance morphed into something else entirely. In the 1990s, he says, he was a fan of credit default swaps.
"But by about 2003-2004, I was starting to get nervous," Das says. "I could see the market had gone from a very legitimate purpose to something which was much more racy and interesting but also much more dangerous."
He says along the way, it stopped being insurance.
"The line between investing and speculation or gambling in financial markets is always a pretty gray one," he says. "And speculation is always a motive."
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