Concerns about developed-country sovereign default risks have grown in the aftermath of the 2007-2008 financial crisis and have intensified in the past year as some Eurozone countries have been facing several fiscal pressures. A sovereign default occurs when a sovereign government is unable to meet its financial obligations. Although U.S. Treasury securities, which represent nearly all federal debt, have long been considered risk-free assets, the magnitude of federal deficits and the projected imbalance between federal revenues and outlays has raised concerns among some. The size of federal deficits and the projected imbalance between federal revenues and outlays have raised concerns among some, including the rating agency Standard & Poor's (S&P), which downgraded the U.S. sovereign credit rating from AAA to AA+ on August 5, 2011. S&P also cited as a factor "political brinksmanship" in debt ceiling negotiations, which raised the spectre that the United States might default on some of its obligations if the debt limit were not raised before Treasury's projected deadline of August 2. Prices for Treasuries suggest that financial markets continue to consider federal debt instruments a safe haven despite the S&P downgrade. Continued concerns about rising federal debt and the ability of policymakers to reach solutions to fiscal challenges could raise borrowing costs and negatively affect capital markets. Many believe that risks were underestimated before the 2007-2008 financial crisis. Some macroeconomists spoke of a "Great Moderation," reflected in reduced volatility of real economic output, which was seen to have resulted from improved monetary policy, more flexible labor markets, resurgent economic growth, and greater sophistication of financial markets. In hindsight, many financial risks appear to have been underappreciated. More recent analysis and commentary has put greater emphasis on managing and understanding risks. For example, one prominent macroeconomist noted that "there is no such thing as an absolutely safe sovereign." A former chief economist of the International Monetary Fund (IMF) and a coauthor note that from a broad historical perspective, sovereign defaults have not been uncommon. Financial analysts use many indicators to evaluate various risks associated with holding government securities. Some risks, such as interest rate risks, are generated by wider market trends. Sovereign default risks may depend on macroeconomic conditions, spending and revenue policies, as well as political and international factors. Some analysts use market prices for derivative financial instruments known as credit default swaps (CDSs) to track sovereign default risks. Although CDS prices may indicate market assessments of default probabilities, the market for U.S. CDSs is small and thinly traded, which reduces its reliability as a measure of the federal government's fiscal condition. A credit default swap is a financial contract in which one party promises to pay another party if a third party defaults. The third party, in this case, is known as the "reference entity." In the case of a CDS on U.S. sovereign debt, the U.S. government is the reference entity. A typical CDS contract on sovereign debt specifies that a buyer, in exchange for an annual fee set by the market and paid quarterly, obtains from a seller specified protection against default and broadly similar events affecting securities issued by a country (i.e., the reference entity). For "cash-settlement" CDS contracts, the buyer would receive a cash payment equal to the difference between the fair market value of the specified asset and its par value if a "credit event" occurs. Other CDS contracts, known as physical settlement CDSs, require the buyer to surrender the asset in return for a payment equal to its par value if a credit event occurs. Par, or face value, is the value of a bond at maturity. For widely held CDSs, recovery values are typically determined through an auction-based procedure specified by the International Swaps and Derivatives Association (ISDA). CDSs are part of a larger class of financial instruments known as credit derivatives, which allow investors to hedge against or speculate that risks that a company or country will fail to meet its financial obligations may rise or fall. The market for credit derivatives has grown enormously since the mid-1990s. In legal terms, a CDS is a bilateral derivative contract traded in the over-the-counter (OTC) derivatives market. It transfers from one party to another the risk that a specified reference entity will experience a "credit event." The CDS protection buyer typically pays a periodic fee to a protection seller in return for compensation if a reference entity experiences a credit event. The reference entity, such as the U.S. government in this case, is almost never a party to the credit default swap contract. In a typical sovereign CDS, such as for the United States, credit events include failure to pay, repudiation or moratorium on debt, and certain debt restructurings. Failure to pay means a failure by the reference entity (in this case, the U.S. government) to make any payments due on its obligations. For U.S. sovereign CDS, there is an automatic grace period of three business days after the date of a missed payment before a "credit event" is triggered for the purpose of CDS. This is true for the purpose of CDS payments even if the underlying debt instrument does not specify any grace period, or specifies a shorter grace period. Also, under standard CDS contracts for sovereign U.S. debt, a credit rating agency's downgrade of the U.S. credit rating does not constitute a "credit event." The maturity of the credit default swap need not match the maturity of an asset issued by the reference entity—that is, a 10-year bond may be protected by a CDS that provides protection for only one year. Five-year CDSs have been the most widely traded, although CDS with shorter and longer maturities—up to 10 years—are also traded. Some observers find it helpful to think of a CDS as a tradable form of insurance, whereas others find it more analogous to a put option on a debt instrument. A put option gives its holder the right to sell a specified asset at a given price by a set date. Someone who thinks an asset will fall in price would value such an option. Banks can use CDSs to offload risks tied to certain assets while retaining legal ownership of the assets. CDS markets enable investors with negative information unrecognized by other traders to exploit that information, which could help discourage the emergence of pricing bubbles in asset markets, or could help limit their duration. Sovereign CDSs can provide a convenient way for major financial institutions to take positions or hedge risks associated with a region or a national economy. Some, however, have contended that CDS markets could also destabilize asset markets or financial institutions in some situations. An investor can buy a CDS without owning or ever having owned or borrowed debt of the reference entity. That is, the owner of a CDS will be eligible for compensation if a credit event occurs, even if he or she realized no actual loss. An investor holding a CDS while not owning or borrowing the underlying bond is often said to possess a "naked CDS." For example, an investor might buy a CDS on a foreign bank's debt in order to hedge against wider financial risks in the bank's home country or region. Issues related to naked CDSs are similar to issues raised by short selling of assets. A short seller contracts to sell an asset at a future date, typically in expectation of a fall in the asset's price. If the price does fall, the short seller can then fulfill the contact by buying the asset at a reduced price, thus collecting a profit. Opponents of such naked CDSs charge that heavy buying of CDS protection, without owning an underlying bond, may contribute to credit-related market panics by fueling market perceptions that an entity is uncreditworthy. They contend that short selling and related transactions may restrict credit available to affected issuers or raise borrowing costs. Others counter that trading in such naked CDSs simply allows traders to arrive at prices for credit protection that better reflect the actual credit risks for the reference entity. Some contend that CDS prices make differences in risk more transparent, which may increase borrowing costs for entities perceived to pose greater default risks, but may give investors a way to hedge against those risks. Public interests, in some cases, may be promoted by restricting the creation or publication of certain types of information. Restrictions on genetic testing, for example, may help maintain the viability of health insurance markets by preventing the splintering of risk pooling arrangements. Such restrictions can help societies spread costs of rare genetic conditions widely, lessening financial burdens on affected individuals, who had no control over their genes. Whether similar restrictions should be implemented to assist sovereigns or corporations under financial pressure, which presumably controlled some aspects of their material conditions, is less clear. Some lawmakers in the United States and European Union (EU) have questioned whether widespread trading of naked CDSs could destabilize the market for a country's debt, particularly for certain sovereign debt under distress, such as that of Greece; or whether naked CDS trades might create destabilizing ripple effects in other markets as well. On July 4, 2011, the European Parliament discussed restrictions on CDSs and short selling. On July 5, the European Parliament voted to adopt a report calling for short-selling restrictions, but a final vote was postponed to allow time for negotiation with the Council of the European Union (formerly the Council of Ministers), which represents governments of member states. On August 11, 2011, France, Italy, Spain, and Belgium adopted temporary restrictions on short selling of financial stocks. On the same day, regulators in Turkey reportedly raised margin requirements on short selling. Greece imposed short sale restrictions on August 8. Several other European governments have imposed reporting and other requirements on short selling, naked CDS holdings, and related transactions.