So AIG sells insurance for which it has no collateral, thinly disguising it as credit default swaps, to those with no financial interest in that being insured (which is illegal if insurance), and you and I get to pay those who bought the swaps and are now collecting big on the destruction of the market and the American way of life. Not a mention of simply making those illegal and calling it what it is - illegal insurance which should be null and void. Nope. Instead, we get to pay out hundreds of billions, to Goldman and the Saudis and whomever else is fortunate enough to be a counterparty - but we can't know to whom the billions are being paid. Again. That's a secret.
Not to me it's not a secret.
I have been harping about the relative ease with which the CDS imbroglio can be killed: Simply have some small state commissioner of insurance declare CDS illegal insurance.
Phil Gramm prostituted himself to make them fall outside federal regulation. But the McCarran Ferguson Act still exists. To the extent inconsistent with federal law, insurance products are regulated by the states. Under the law of every state I know, the holder of a policy must have an insurable interest in the object of the insurance. Most CDSs insure against some sort of risk but few holders have insurable risks. They are bets at the casino, the equivalent of allowing me to buy life insurance on some poor homeless wretch then collect the proceeds when he croaks unexpectedly and violenty. And, by the way, I have a perfect alibi.
Don't forget this: the holders of CDSs, especially the ones who don't hold the underlying instrument, have a vested interest in default. The bet is relatively small but the payoff, with your tax dollars, is huge. It is an enormous scandal.
I am thinking class actions.
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