2008-11-28 — ft.com
The unintended consequences of using CDS for dynamic credit pricing are predictable, unnecessary and dangerous. Regulators must get these financial weapons away from economic arsonists immediately and ban the tying of loan interest rates to CDS prices. And, policymakers need to think clearly about why it is “good†to allow speculators to make naked bear bets on companies and then “shave the odds†by trading in the unregulated CDS market. Substantive regulation of CDS is needed immediately before unsuspecting companies are destroyed.
It seems rather elementary that CDS should either be regulated like insurance (so you cannot buy a stake unless you have a genuine economic interest in the outcome), or treated like exchange-traded securities, with naked shorting prohibited and even better with uptick rules in place.
The fact that this ridiculousness is still continuing is just sad.
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