In my view, CDS contracts and complex structured assets are deceptive by design and beg the question as to whether a certain level of complexity is so speculative and reckless as to violate US securities and anti-fraud laws. That is, if an OTC derivative contract lacks a clear cash basis and cannot be valued by both parties to the transaction with the same degree of facility and transparency as cash market instruments, then the OTC contact should be treated as fraudulent and banned as a matter of law and regulation. Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists.

The clear version of the above, in English.

It is my view and that of many other observers that the CDS market is a type of tax or lottery that actually creates net risk and is thus a drain on the resources of the economic system. Simply stated, CDS and CDO markets currently are parasitic. These market subtract value from the global markets and society by increasing risk and then shifting that bigger risk to the least savvy market participants.

And let's not forget who gets all the money.  JP Morgan, Goldman, et.al.

Seen in this context, AIG was the most visible "sucker" identified by Wall Street, an easy mark that was systematically targeted and drained of capital by JPM, GS and other CDS dealers, in a striking example of predatory behavior. Treasury Secretary Geithner, acting in his previous role of President of the FRBNY, concealed the rape of AIG by the major OTC dealers with a bailout totaling into the hundreds of billions in public funds.

Any questions?

Chris has been one of the consistent bright lights in this mess since it began. 

I have called for all swaps and other OTC derivatives to be forced onto an exchange.  Why?  In no small part because I know that not all derivatives can be exchange traded, and should this be forced all the "sham" products would be immediately exposed for what they are and eliminated from the marketplace.  Those that are legitimate products would trade with transparent pricing, open interest and volume, thereby contracting spreads to a reasonable level and eliminating the ability of the cabal of dealers to screw their customers.