Bill Herbert

CDS Clearing Houses Could Magnify the Market Disruptions

I think Ben Stein had it right - just declare all of this nonsense null and void - these are illegal insurance contracts - and move on down the road. If you propose a clearinghouse, I sincerely hope you intend to fund it with private money, i.e. not my money!

Look, if two idiots in a bar bet each other $25,000 on, say, the World Series, and when the loser can't pay, why should the Federal Government step in and pay the winner? That makes no sense.

In the case of the CDS racket (and believe me, that's exactly what it is) the loser is an idiot at Merrill Lynch, and the winner is an idiot at a hedge fund. Or vice versa, it makes no difference. Most of these 'contracts' are just gambling events - negotiated over the phone, often by people like the creep at AIG who was just trying to pump up his bonus, giving no thought to the legality of what he was doing, or how it just might destroy his company.

Many of these so-called "contracts" are just an agreement faxed back and forth, sometimes there is no signature, some of them are now being repudiated by the losers, as in "I never agreed to those terms" or 'Bob left six months ago - we have no idea what you're talking about.'

To ask the U.S. taxpayer to bail out these idiots is beyond any rationality - we are not "saving the financial system", instead we are underwriting crime and extreme recklessness and moral hazard by a bunch of adventurous con men.