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Zombie Banks: How Broken Banks and Debtor Nations are Crippling the Global Economy by YALMAN ONARAN

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Chapter 10

Bigger Banks, More Derivatives, Higher Risk

In September 2010, some of Ireland’s government guarantees for bank debts were about to expire, which put U.S. Treasury officials on edge. If the guarantee wasn’t renewed, the banks would likely default on their bonds, triggering the next event in line: a slew of credit default swap (CDS) contracts on the banks’ debt. U.S. Treasury officials had reason to worry—the names backing those contracts were the largest U.S. banks, and they could end up paying billions in case of default. Any more weight on U.S. banks could be a tipping point to collapse. Treasury officials made inquiries to their counterparts at the Irish finance ministry, asking about the course of action the country was planning ...

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