Credit default swaps are a way for large financial institutions to pass risk of defaults along, you might have heard "spread the risk around", by getting their

Credit default swaps are a way for large financial institutions to pass risk of defaults along, you might have heard "spread the risk around", by getting their risk insured by other big firms. Those firms in turn do the same thing, and everyone was happy because it created lower risk and made loans easier to get. In theory. In practice this chain of risk management snapped when one company defaulted on their insurance of the risk and the whole thing came crashing down.