Credit Default Swaps: The Insane Problem and the Radical but Sane Solution

Paulson, who failed and sometimes refused to regulate and now claims changes to his proposal aren't possible because of an emergency that resulted from his failure or refusal to regulate?

Paulson, who last Sunday rejected suggestions that his taxpayer-funded program be revised to provide any sort of relief for homeowners facing foreclosure?

Paulson, who steadfastly refuses to consider taking a hard look at A.I.G. and other financial firms. How could these companies, managed by the so-called "best and brightest" guys in the room, have committed such a long and horrendous series of "poor judgments"?

By accident, or sheer incompetence?

Hard to believe, given that everyone in the room knew millions of explosive mortgages were being written to families without sufficient income, or in some cases no documentation of any income at all, based on fraudulent appraisals and supported by fraudulent AAA ratings.

Given the size and blatant nature of the disaster, accident and incompetence excuses simply don't fly. Something more was involved. That something is the number and size of vultures who bet on and stand to gain from the disaster, and how much they stand to gain. Too many people owning fire insurance on my neighbor's valuable house.

In my house fire insurance example, the insurance companies that wrote the polices risk going broke, due to an unprecedented number of mysterious house fires, each resulting in an unprecedented number of claims.

The proposed bailout asks for $700 billion. The number of homes through, in the process of or facing foreclosure is currently about five million. Meaning the cost will be about $140,000 per home.

But the problem as to credit default swaps is much bigger. The notional value of credit default swaps outstanding is estimated to be about $62 trillion.

This is about $12.4 million per home. About 31 times the value of a $400,000 home.

No wonder America is experiencing an emergency of mysterious financial house fires. And who will benefit? Those who taught and then encouraged the boy to play with matches.

The Sane Solution

Our leaders warn of dire consequences: If the $700 billion bailout bill is not passed immediately, without debate, let alone modification, economic growth will "suffer".

But America has already experienced years of economic growth. And suffering. The parasitic, predatory type of growth I've described has already resulted in many years of much suffering on Main Street.

More suffering? The honest, hardworking people of Main Street USA who would never dream of attempting to make a profit on someone else's disaster deserve to see much more than suffering. They deserve to see death. Of all the financial institutions that sought to get rich on the backs of hardships suffered by or intentionally inflicted on others.

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