We covered this quite a while ago, its not the CDS defaults that are really the problem. Its what they are insuring against that is the problem. If there are 50 trillion in notional CDS contracts, but they are only insuring against 1 trillion in acutal bonds or other assets; the maximum loss is the 1 trillion, plus the premiums paid for those contracts.
I find it funny reviewing my own writing that I would ever think that a trillion dollars isn’t a lot of money, but its a shitload less than 50 trillion.
The best question I can think of to ask is, what percentage of those CDS will have a credit event, being exercised, and on how much in terms of underlying assets?
