FEDs Credit Default Swap Exchange: An offer you can't refuse

02-27-2010 • nytimes.com/

But taxpayers remain decidedly on the hook for future bailouts because Congress has done nothing to eliminate the once-implied but now explicit government guarantees backing large and interconnected companies. And on derivatives trading, lawmakers’ moves have been depressingly incremental. Mr. Mayer, for one, believes that credit default swaps must be exchange-traded so that their risks would be more evident. He dismisses the contention of big institutions in this arena that many credit default swaps cannot be traded on an exchange because they are tailor-made for particular customers. “These are generic risks and can be traded generically,” Mr. Mayer said. “You are not insuring against a very individual risk.” AND what of the argument that increased regulatory oversight of credit default swaps will crimp financial innovation? “This insistence that you mustn’t slow the pace of innovation is just childish,” Mr. Mayer said. “Innovation has now cost us $7 trillion,” he added, referring to the loss in household wealth that has resulted from the crisis. “That’s a pretty high price to pay for innovation.” Couldn’t agree more. Too bad Washington doesn’t see it that way.

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