Just a Little Explanation Should Do..
I just had the following clip from alphaville:—
In the midst of the ongoing and increasingly heated debate about credit default swaps, be they naked, sovereign or Sharia compliant, one fundamental fact has been overlooked — CDS are not insurance.
Authoritative isn’t it. Though hardly explanatory.
So, just a little explanation for more folks to gettit.
Insurance relates to owned asset/s.
Most credit default swaps business is naked, meaning not owned asset/s. This latter in fact being underlying asset/s. CDS is thus a betting slip.
Hence talk most recently of speculators betting Greece will default on its debt payments.
Wolf Munchau @ FT has opined this a criminal activity… if lack of regulation has not in point of fact rendered it legal.
That Greece might suffer exceeding consequences ( wider sovereign spreads ) through no fault of its own by such speculation does, IMO, require appropriate regulation.