Bringing Home "Credit Default Swaps"

During the past several days of government hearings and committee sessions on Capitol Hill, Americans are hearing a new term, "credit-default swaps." With a little research, anyone can understand this new term.

First think of buying lottery tickets once a week for $10. A year ago, your money was flush leaving you about $200 a month in disposable income. Purchasing your weekly lotto ticket was not a financial burden. Six months ago, your adjustable rate mortgage "adjusted" and your house payment went up $1000 a month, putting your home budget in an $800 a month deficit. No problem. You have a credit card with a $15,000 credit line. Every month you get a credit card advance for $1000. You use $800 for your mortgage and $200 for your disposable income because you wouldn't want your lifestyle or spending habits effected by a little thing like your mortgage adjustment.

So, for the past 6 months you have been buying your lottery tickets with borrowed money. You know you can't win the lotto if you don't play, so you keep gambling your $10 a week. If you win, you'll win big. If you don't win, you just keep borrowing money to gamble because you know "tomorrow" you will be your winning day.

Twelve months later, your credit card is maxed out. Your home mortgage is in default and foreclosure is looming. You take the last $10 and buy a lottery ticket knowing this ticket is your only way out. You have to win this week or you risk losing everything. Holding your last lotto ticket in your hand, you tune your television to watch the weekly lotto draw. The lottery numbers are drawn and, unfortunately, you did not win the big one.

You now have $780 of borrowed money at 12% interest invested in the lotto. Your stack of worthless lotto tickets have become "credit default securities." If you can package up your stack of worthless lotto tickets to make them look brand new - kind of perfuming the pig so to speak - and find someone to purchase these "securities," you have created your very own, "credit default lotto swap."

Send Treasury Secretary Henry Paulson an email telling him you have a stack of "credit default securities" you wish to sell. Maybe he'll bail you out.