Credit Default Swaps (CDS's) (i.e., quasi Insurance Contract) require seller of the CDS's to pay the buyers of them some sort of compensation if the municipality misses an interest payment or restructures the debt...That's a nice way of saying, someone's betting that a municipality is and then isn't going to default...(Almost Harrisburg, PA??)
California is about to require disclosure of all their CDS transactions from several large banks so others can see their exposure and risk.
The total muni CDS market is estimated to be about $50 billion.
Losses are more prone on development bonds and other non traditional debt.
Note: I feel a big pain in my butt developing, but I just can't put a finger on who to call to help ease my pain!
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