Why Insurance Commissioners Should Not Regulate CDS

There's a meme doing the rounds -- I fear it may have been caught by my colleague Rolfe Winkler -- that credit default swaps are insurance products, and that therefore they should be regulated by insurance regulators. So before this nonsense spreads any further, it's worth explaining just why that's a very bad idea.

First, credit default swaps are not insurance, they're swaps. A lot of journalists talk about them being "like an insurance contract" when they try to explain what they are, and that's true, as far as it goes -- they do share certain characteristics with insurance. But that doesn't mean they are insurance. It doesn't mean that some foolish law should be passed forcing buyers of protection to have an "insurable interest" in some underlying debt instrument, and it certainly doesn't mean that all CDS should be regulated by some insurance commissioner somewhere.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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