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At the center of the credit crisis are trillions of dollars in credit derivatives sold to creditors looking to hedge their credit risk from subprime loans. Trading in unregulated markets, buyers and sellers of credit derivatives weren’t required to cover their potential losses from increased credit risk, which led to rampant speculation in these financial instruments. Buyers relied increasingly upon leverage until the collapse of the subprime market left sellers like AIG and Lehman Brothers overwhelmed by liabilities from defaulted loans.

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