Bernanke also said there were now risks to the global financial system from unregulated credit default swaps. These are insurancelike products that allow big investors to hedge against potential losses. The market for swaps is thought to total $55 trillion, yet it's a "dark market," unregulated and without transparency, amounting to nothing more than contracts between two sophisticated parties.
"Credit default swaps are not traded on an exchange. They aren't traded through a central counterparty, which means if one of those firms fails, among the consequences would be that the banks and others who had purchased credit insurance would be forced to write down tens of billions of dollars of value," Bernanke said.
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