It&#x27;s pretty simple really.  Swaps are now centrally cleared, so you have to post collateral through a clearinghouse.  If on any day, one party cannot settle up on their daily variation margin, the trade is terminated.<p>Compare this to before, when swaps were often un-collateralized, so you might have a huge paper profit on a trade that you&#x27;ll never actually realize because the counterparty lacks the cash to settle up.<p>So before, you could lose the total amount of your trade, but now you can only lose a day&#x27;s worth of gain or loss.<p>This is a big improvement, and the risk to the taxpayer is pretty de minimus.  Of course the central clearinghouse could default, but that&#x27;s very unlikely for a variety of reasons (mostly that the central clearinghouse&#x27;s whole reason for existence is not to default).