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I've read proposals by blogger by the Name of Karl Denninger, that goes like this. Create an Exchange for CDS's, allow 6 months for all CDS that are backed by adequate reserves to be put onto the Exchange and then void all those that can't pass this bar. In addition "Naked" (aka Insuring your neighbors house rather then your own) CDS's would be prohibited and immediately voided.
Full article here
The Exchange idea is a minimum for going forward with CDS's and the prohibition on Naked CDS's may also be necessary. As for what to do with the current mountain I'm doubtful that they will be voided by any means other then the issuing agency going into receivership. Though I agree with his proposal and think the exchange and transition period would provide a good means to separate legit and illegitimate Swaps, AIG's CDS's would obviously be illegitimate as they had virtually no reserves backing them.
Full article here
The Exchange idea is a minimum for going forward with CDS's and the prohibition on Naked CDS's may also be necessary. As for what to do with the current mountain I'm doubtful that they will be voided by any means other then the issuing agency going into receivership. Though I agree with his proposal and think the exchange and transition period would provide a good means to separate legit and illegitimate Swaps, AIG's CDS's would obviously be illegitimate as they had virtually no reserves backing them.
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