Taxation of Credit Derivatives

One arguably good thing about the current financial crisis is that it has broadened public understanding of the global financial system. Few people had heard of credit default swaps two years ago, but these instruments have, since then, forced themselves on the attention the most casual reader of financial news. Credit default swaps brought insurance giant AIG to its knees, and precipitated a $100 billion U.S. government bailout of the company. More recently, it has been reported that hedge fund manager John Paulson made more than $3 billion during 2008 using credit default swaps to bet against subprime mortgages.