One man's speculation is another man's insurance...

The current finanical crisis in Greece has prompted an outburst of entertaining discussion at the FT about CDS contracts, initiated by a feature article by Wolfgang Munchau who advocates that naked CDS contracts should be banned. The main argument used is that you should not be able to insure against a risk that you do not face e.g. buying insurance on somebody else's house then arranging to have the house burnt down. In support of Mr Munchau, one reader letter points out that insurance without interest in the insured item has been illegal since 1746, which on the face of it seems a long enough time to be a credible point in the discussion.

However, in using this argument then Mr Munchau seems be to attacking the whole of the derivatives industry not just CDS, for example the same argument could be used to ban the use of naked index puts to hedge equity market risk. I guess he is also helping some of the politicians in the EU direct attention away from Greece's financial mismanagement more towards the "evils" of the derivatives markets and hedge funds.

Some good letters in response, for instance this one with a good illustration of what hedging would be like without intermediaries to buy and sell risks that they do not own, plus another more direct one from the Association of Corporate Treasurers.

Whilst talking of Greece and credit, the FT Alphaville team also poked some fun at Anatole Kaletsky, the economist of the London Times Newspaper, who has recently done some interesting articles in the paper concerning his predictions about the stresses being suffered by Greece and the Euro. From their post, it would seem that Mr Kaletsky also runs a credit related fund, so it is implied that some of his newspaper views need to "calibrated" against his own vested interests...