Let's say that you've gotten a little carried away with all the money you've made blogging and that you went and loaned a big chunk of it to your blogging pals.  As smart an investment as those loans may seem at the moment, it's never a good idea to have too much exposure to any one industry (even an industry doing as well as the blogging industry).  So, what do you do?  My suggestion is that you enter into a credit default swap with a bank that has an appetite for more exposure to the blogging industry. 

What is a credit default swap?  A credit default swap (CDS) is simply an agreement that transfers credit risk from one party to another in exchange for premium payments.  Kind of like insurance, but not really (the International Swaps and Derivatives Association (ISDA) hates it when you call a CDS "insurance").  If one of your blogging friends defaults on the loan, then the bank pays you the outsanding principal amount of the loan.  The bank would then have all of your rights under the loan. 

Hopefully you charged an interest rate that is higher than your swap premium so that you can pocket the spread!  (I'll save the discussion of credit risk measurement and pricing for a later post).

There are probably some "ins" and "outs" and "what-have-yous" that I'm not covering here, but if you need more information about credit default swaps or any other kind of derivative, search around ISDA's website.

For previous entries in the "Percy Teaches Bloggers to Make Money" series, start here and follow the hyperlinks back.