[quote=UCGal]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?
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Yes, but the problem is that those brilliant folks we put in Washington allowed companies to play in both markets. So, AIG would have been fine, except for the division that wrote tons of CDS policies which took out the whole shebang.
I know that some (many?) will disagree with me here, but the government should have made distinctions, and they should only have stood behind those policies which they regulated, and had some responsibility for. This would have meant significantly more turmoil in the big banks as AIG defaulted on all those CDS, but honestly I believe that bankruptcy is a solution, not a problem. (Just like foreclosure is a solution and just like the FDIC taking over an insolvent bank is a solution) But the powers that be, or maybe better described as the powers that are beholden to the banksters didn’t see it that way and moved all those losses on the CDS’s to the taxpayer.
