INSURANCE AND CREDIT DEFAULT SWAPS: SHOULD LIKE THINGS BE TREATED ALIKE?

This article focuses on the potential moral hazards created by the use of credit default swaps ("CDS") and argues that perhaps such swaps should be regulated as analogous to regular insurance regimes. The author discusses academic mischaracterization of the issue, including arguments that CDS is not the same as insurance, and refutes this mischaracterization by comparing original rationales for regulating insurance with moral hazards created by the use of this credit risk management practice. Several specific examples are provided to illustrate this argument, including that of investment banks, scholarship on insurance contracts, control, regulatory value, and the issues of risk that underlie both regimes. Finally, the author asserts that, given the similarities and risks involved in CDS as compared to traditional insurance, regulation possibilities should be investigated.