Welcome to Econ Talk, part of the Library of Economics and Liberty.

I'm your host Russ Roberts of George Mason University and Stanford University's Hoover

Institution.

Our website is econtalk.org, where you can subscribe, find other episodes, comment on this podcast,

and find links to other information related to today's conversation.

Our email address is mail at econtalk.org, we'd love to hear from you.

My guest today is Arnold Kling, blogger at econlog and recent contributor to econtalk and a

podcast on Fannie Mae and Freddie Mac.

And I wanted to continue that conversation.

We're taping today on October 24th, 2008, and this will air in the next week or two, roughly.

Sometimes events have taken over these podcasts, we'll see what happens, but we're still

in the midst of lots of turmoil in financial markets, and I wanted to continue my education

and I hope yours by asking Arnold both some fundamental questions about financial markets

that I don't understand, as well as some bigger issues that we wanted to bat around.

So Arnold, welcome back.

Oh, thanks Russ.

So the first question I want to ask is just a logistic procedural, technical question.

Two topics we hear a lot about in this debacle are credit default swaps and counter-party

risk.

My understanding is that Bear Stearns, Lehman Brothers and other players in this market got

involved in these, but I really don't know what they are.

So tell us what they are or what they were and how they played a role in this.

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