Trading derivatives soared this year, helping to drive up the cost of insuring Greek debt, which means a big increase in the interest Athens must pay to borrow money. The cost of insuring $10 million worth of Greek bonds, for instance, rose to more than $400,000 in February, up from $282,000 in early January.
On several days in late January and early February, as demand for the insurance known as "swaps protection" soared, investors in Greek bonds fled the market, raising doubts about whether Greece could find buyers for coming bond offerings.
Bankster weapons of mass destruction: CDSs and CDOs and their origins
Between 1936 and 1982, certain kinds of derivatives, where you weren't a party to the sale, were illegal. In other words, companies that needed to buy futures options (a kind of insurance) to protect and insure their business success could buy that kind of insurance. Example: An airline company that wanted to make sure it would be able to buy fuel at a given price (rather than at a suddenly inflated price some months ahead) could buy a kind of insurance that would guarantee that they would have the opportunity to buy fuel at a stable price, regardless of future market fluctuations in the price. Specifically they could purchase an "option' to buy a certain amount of fuel over a certain time period, for a specified price. They would pay a fee for that privilege (a kind of insurance premium), and it would insure that they could get that fuel, over a specified period of time, at a price that was consistent with continuing profit margins that were acceptable to them.
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