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Credit Default Swaps: The Key to Financial Market Reform
What is needed now is recognition of why this kind of intervention has proven necessary and, building on that analysis, the construction of a less haphazard system for determining which insurance policies the government will issue and which it will not, in order to create appropriate tiering in the market. So far, government interventions have been focused on supporting individual institutions rather than markets, and on insuring specific portfolios of assets rather general categories of risk. So far, government interventions have been focused on fighting fires rather than systematic intervention, and on the immediate crisis rather than permanent institutional reform. In this respect, a careful examination of how the system of structured finance works will make clear both why credit insurance is the answer to the crisis, but also why credit insurance must be part of any lasting financial reform.
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- Initiative for Policy Dialogue
- Published Here
- February 4, 2010
Notes
The opinions expressed in these papers represent those of the author(s) and not The Initiative for Policy Dialogue. These papers are unpublished and have not been peer reviewed. Please do not cite without explicit permission from the author(s). "Credit Default Swaps (CDSs): The Keys to Financial Reform," Time for a Visible Hand: Lessons from the 2008 World Financial Crisis (New York: Oxford University Press, 2010).