When it comes to elected officials, Congresswoman Waters is not one I would typically feel that I have a lot in agreement with. A representative of a low-income district in Los Angeles, Waters is a senior member of the House Committee on Financial Services and has distinguished herself in the past by her sharp attacks on the financial sector and capitalism in general – what her own Web site describes as her "no-holds-barred style of politics."

However, Congresswoman Waters’ bill to prohibit credit default swaps – introduced last Friday (July 10) – is strangely appealing, even for a crusty old capitalist like myself.

If you want a more pro-capitalist confirmation of Waters’ view (and George Soros doesn’t count) try Warren Buffett’s sidekick Charles T. Munger, who has called the CDS prohibition the best solution, and said "it isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it."

Waters has also pointed out – quite reasonably – that unless credit default swaps are banned outright, "the industry will find a way to loosen standards and widen exemptions for customized contracts and we will be right back to where we are today." 

When There’s No "Free" in Free Market

As a free-market enthusiast, my natural instinct is to resist such calls. But I have to recognize that, as we speak, we’re actually not operating in a free market. Key U.S. banks were bailed out by the U.S.