This derivative has been making so much credit available; basically, for the last decade, not only the American economy, the entire world economy, yes, including China, was built upon it.
Where did the money come from? and where did the money spend to?
I think the phrasing could possibly be “privatized gain, globalized loss”.
It is never a simple question of right or wrong.

Here is an interesting book by Geroge Soros, "The New Paradigm for the New Financial Markets"

It’s only until now, the US starts to talk about regulating CDS. But don’t worry, the sharks will think of some other financial hedging products for the world to gamble with.




The fact remains that you can’t make a clapping sound with one hand, or can you?

The governments, all able governments across the world, will be and have to be very selectively in handling the situation.  

They have to act on FM and FM cos, the US government is their products' guarantor.  The US government can't default.  

The world has to do something about AIG, because AIG is the largest CDS playhouse in the world.  For short term, AIG is indeed having liquidity concern, but the real problem is the sharks have target to make a hefty profit out of the AIG short term concern.

It might be a good idea to keep one thing in mind.  Financial products are products, like watches, telephones, cars.   And let's not kid ourselves; we know it is a gambling game.    People still buy and sell willingly.  I think they call this "Free" market.

Here is a quote from Alan Greenspan, The age of Turbulence Pg 372,

" Regrettably, every time a hedge fund's problems make the news, political pressure to regulate the industry mounts. Hedge funds are both risk takers and very large, the thinking goes—doesn't that prove they are dangerous?  Shouldn't the government rein them in? Leaving aside the undermining  of market liquidity that such actions could induce, the benefit of more  government regulation eludes me. Hedge funds change their holdings so  rapidly that last night's balance sheet is probably of little use by 11 a.m.—  so regulators would have to scrutinize the funds practically minute by minute.  Any governmental restrictions on fund investment behavior (that's what regulation does) would curtail the risk taking that is integral to the contributions of hedge funds to the global economy, and especially to the economy of the United States. Why do we wish to inhibit the pollinating bees of Wall Street?"

There is a lot of problem Tsang, but don't blow it out of proportion.  He is just a man.

PROs?  I can't speak on Rubber's behalf, but for Rainybreeze?  Please, as I was saying, don't blow it out of proportion.

For the CDS, the US rumor goes that they are going to put the tradings onto the Trading Board to make everything transparent.  The question is, would that solve the problem? What is/are the problems? Short term or Long term? What's the priority? Economy or politic? US economy or World economy?

The financial market used to be a place for people to get funding to run business to "Produce".  Now, it's a huge gambling pool.  And the beauty of it is, if you know how to play game well, you can use $1 to buy $100 worth of company and then break it apart and sell it.  If you could do it fast, you would make so much money.  What's the point of putting a life time's work in building up a company when you can make money so much easier just by buying and selling?  Look at their financial reports and see what kind of assets they are holding.  The American changed their accounting reporting standard for a reason.

The PRC has been very cautious to open up the financial market.  On one hand, you can't afford not to play the game, and on the other hand, the game could easily destroy China's economy.  They call it “Globalization”.  Fancy word isn't it.

Regulation itself is not that difficult.  The question is who would be benefit form the regulation?  Yes, it's a wealth distribution decision.

We want to spend a dollar, we either earn a dollar, or we go out and borrow a dollar, then we have something to spend.

Under the yet to be regulated US free market, this is how Greenspan been keeping US out of recession out of the past 20 years.

Another thing is, under the said system, you could self multiply your money, in FM's case, from core asset of 80 billion to 5200 billion.  It's done legitimately, so that if other people don't play the same game, they are going to be at the wrong end of the stick when counting the dollar bills.  Anything for sales?  Someone has a lot of other people's money to buy.

Look at Hong Kong Exchange, the at-auction and at-auction limit orders, the warrants.  The Board of directors is doing their part to make HKE as much a "Free Market" as the US to attract Funds to come in.  If we want Hong Kong to be the Asia lively Financial Center, something has to give.  

Gamble big and win big.  Loser?  Well, something has to give.