Instead of bailing out financial institutions holding mortgage backed assets, Ben Stein advocates making govedrnment the buyer of last resort for houses themselves, thereby stabilize the home markets and mortgage debts! He also favors annulling Credit Default Swaps (CDS) contracts. Felix Salmon contends that this may not be a good idea.
CDS are derivative contracts, with bundles of mortgage backed securities as the underlying asset, which seeks to effectively insure against default risk on claims on the assets. Since they are not strictly insurance contracts, they have prospered unregulated, running up a massive $62 trillion market, compared to a mere $1 trillion in sub-prime mortgages and just over $3 trillion in sub-prime mortgage backed securities. They have even moved into other areas like leveraged loan bonds, student loan bonds, credit card bonds and so on.
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