Despite the high jinks and copious drinking (or perhaps because of it), their large brains came up with a way of reducing risks for bond buyers: a bilateral contract that, for a fee, enabled investors to pass on the risk of default to another party.

WSJ: Give Some Credit to Credit-Default Swaps

Instead of a single bilateral contract, there will be two one between a clearing-house and the original seller, and the other between the clearing-house and the original buyer.

ECONOMIST: The risk in clearing-houses