Zimbabwenomic forces are following up last year’s smashing success in banning short-selling in certain financial firms with new legislation aimed at effectively scrapping the entire CDS market.
House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.
It’s about time that someone put together a way to stop the CDS market cold in its tracks. The instrument’s ability to provide hedging for companies’ debt, improved liquidity in names, and more accurate information about the health of issuers is not only dangerous, but it’s overtly capitalistic (they might as well be called Credit Default Ronald Reagans), which we now know to be a mistake. A healthy economy doesn’t need an unfettered free market system — what it needs is a regulated command economy that ensures that houses (and everything else) are always affordable, especially for people that can’t afford them and that politicians are always in control of all economic and financial processess.
This particular zimbabwenomic reform comes from the chairman of one the most progressive committees in the house, and hopefully he and fellow zimbabwenomicist Barney Frank can push forward appropriate regulation of all markets, specifically, regulation that will prevent them from going down.
As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bonds, according to Eric Dinallo, superintendent of the New York Department of Insurance. Dinallo last year proposed outlawing so-called “naked” credit-default swap trading. He shelved the proposal in November because of progress by federal regulators on broader oversight of the market.
More generally, we think one of the effects of the Great Regression will be that everything naked will take a hit. Naked trading, naked shorting, naked greed, naked people and naked CDS positions were the excesses that got us into this mess. The lesson? We, as a society, need to do it with our clothes on, whatever “it” is.
Recommendation: We recommend an unhedged short on naked trading, naked shorting, and naked CDS positions, basically anything naked. Putting clothes on all such actions ensures that nothing is able to go down. Now is a perfect time to bone up on dry humping in expectation of the new regulatory paradigm.Related Reseach:
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