I was reading the Article in Wikipedia about Credit Default Swaps. As always Wikipedia offers great information mostly not biased. This quote I particularly find interesting, from the article:
Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase. They were designed to shift the risk of default to a third-party, and were therefore less punitive in terms of regulatory capital.
Credit Default Swaps became largely exempt from regulation by the SEC and the CFTC with the Commodity Futures Modernization Act of 2000 , which was also responsible for the Enron loophole. President Clinton signed the bill into Public Law (106-554) on December 21, 2000.
And this is also an interesting Tidbit. Actually this whole article is very interesting. The Systemic Risk of a CDS is especially big, because it still is a private contract!
So here comes the joint Press Release of
The Role of the Federal Reserve in Preserving Financial and Monetary
Stability – Joint Statement by the Department of the Treasury and the Federal
regarding “Sytemic Risk” and more. Also note in point two
not to allocate credit to narrowly-defined sectors or classes of borrowers.
And here come the statements from Treasury Secretary Timothy Geithner and Chairman Ben S. Bernanke.