The Journal reported in April that hedge funds and other
investors were making bets in the credit-default swap
markets to take advantage of volatility that stemmed from
the trades done by Mr. Iksil, who worked out of the Chief
For a great insight into the role of CDS'es in the recent economic events, I highly recommend this documentary:
"It is the first time in American history where we have seen a collapse followed by no fundamental reregulation of the financial services sector because they have the power to block change from either the Democrats and Republicans, because they can say to the Democrats and to the Republicans, 'If you don't back us we guarantee you will lose in the next election.'"
I don't know history or politics well enough to judge the truth of the statement, but if he's right, that's pretty scary.