Excuse my ignorance. But isn’t life insurance, car insurance, home owners insurance well regulated. Are the issuers required to have a decent percent of capital to back up the policies they write?
And weren’t CDS’s unregulated, and there weren’t requirements for capitalization?
I think that is the key difference.
It’s like comparing a State Farm Car Insurance policy (picked an insurance brand randomly) to paying some street thug $5 to make sure your car isn’t vandalized when you have to park in a bad neighborhood. The first you purchase with a confidence that it’s well regulated and backed with assets. The other you know has inherant risk. When you purchase the latter type of “insurance” you know the kid you’re paying off may or may not stick around and watch your car.
