As I’ve previously written, credit default swaps should be rescinded or frozen until the global financial crisis is stabilized. At the very least. CDS should be illegal unless the CDS purchaser owns a stake in the referenced entity or in the related chain of supply. In other words, “naked” CDS should be outlawed.
Investment expert Yves Smith apparently agrees. In an article on hedge funds’ purchase of CDS from AIG (and the fact that the hedgies will apparently get some bailout money), Smith writes:
If the public were to take offense at the idea of government money rewarding successful speculators, it might lead to restrictions on CDS writing in cases where the protection buyer did not own and continue to hold assets of the reference entity.
Moreover, Congressman Peterson is apparently introducing a bill to ban naked CDS. Please support his bill.