Anandakos

CDS Contracts and the Implosion of Eastern European Economies

Mr. Harrison,

CDS should be enforceable only when held by the lender of the insured debt and only in an amount less than or equal to its notional amount.

Any other holder is functionally the same as a purchaser of life insurance on a third party. That has been illegal for three hundred years.

Congress could and absolutely should fix this by legislation for CDS going forward. Unfortunately, it can't for the existing stuff; that would be ex post facto.

So we're in for a couple of years of such obnoxious gaming of the system of orderly bankruptcy. Perhaps we'll be fortunate enough to see CDS' written on Morgan-Stanley debt paying off. One can at least hope that such a karmic "just deserts" occurs.