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Have you ever thought about taking out an insurance policy on your neighbours house?

Think about it? You don't own your neighbours property or pay for its upkeep but if your neighbours house burns down you collect on its full value.

Not difficult to understand is it. Apart from setting up a situation for potential fraud. It's morally wrong. Well, that is what has been happening in the financial markets.

Credit default swaps (CDS) are the mainstay of the credit derivatives market they account for more than 98 percent of all credit derivatives. They are difficult to understand, ignored by regulators and poorly reported on balance sheets. In simplest terms, CDS are insurance policies on things like bonds, loans and corporate debt. But there are two big differences: the seller of a CDS doesn't need to have the money to cover losses if the security defaults, and the buyer doesn't need to own the asset it wants to protect.

This is the time bomb which will explode in the financial sector in these comming weeks.