Regulation to credit default swaps is coming. Hoooray! With the agreement on November 14, 2008 between the SEC, Federal Reserve, and the Futures Trading Commission, a great deal of uncertainty is soon to be lifted of the shoulders of the financial markets. Hopefully, global markets will follow suit. The regulation, hopefully, brings the transparency needed about the nature of transactions, and importantly, creates a level of guarantee that people who sell swaps, have the resources to back them up if called upon.
Thank goodness the rest of us will be able to interpret a consensus risk of default, from a well understood market, rather than guessing at from a closet market. Alan Greenspan should be thanked for many things, but effectively leaving a credit default swap market unregulated is not one of them.
With this news, look for markets to have reduced volatility in the first quarter of 09 and well run companies, (that is to say, proper leverage) will be rewarded with strong gains.
