If you want to understand what’s at stake with the current economic crisis, and why it could very easily go from bad to 45-trillion-dollar bad, you could do worse than to read the two articles from the New York Times Sunday Business page on credit default swaps. Nelson D. Schwartz and Julie Creswell lay out the basic story in “What Created This Monster?” and Gretchen Morgenson explains the implications of the Fed/JPMorgan bailout of Bear Stearns in her Fair Game column.

Here’s the key grafs from each article (at least as they appear from the very distant sidelines where I’m sitting). From Morgenson, who’s discussing the possibility that JPMorgan had effectively sold insurance on Bear Stearns’s bonds via credit default swaps, and therefore had a very direct interest in making sure that Bear didn’t end up in bankruptcy:

An interesting side note: It’s likely that JPMorgan, the biggest bank in the credit default swap market, had a good deal of this kind of exposure to Bear Stearns on its books. Absorbing Bear Stearns for a mere $250 million allows JPMorgan to eliminate that risk at a bargain-basement price. JPMorgan declined to comment on the size of its portfolio of credit default swaps.

And from Schwartz and Creswell, who are discussing the reason the Fed had to get involved:

Bear Stearns held credit default swap contracts carrying an outstanding value of $2.5 trillion, analysts say. “The rescue was absolutely all about counterparty risk. If Bear went under, everyone’s solvency was going to be thrown into question. There could have been a systematic run on counterparties in general,” said Meredith Whitney, a bank analyst at Oppenheimer. “It was 100 percent related to credit default swaps.”

And finally, check this article for a look at the fight that’s already brewing: how to implement regulations that will help keep all this from happening again.