Another big idea is to resolve the CDS issue. Credit default swaps total trillions in value, and in many cases the contracts were purchased not as genuine insurance (by the holder of a bond) but as a speculative investment that will pay off if the .
Whalen calls for a mandatory unwinding of these contracts, in which purchasers who were genuinely hedging a risk would be covered, while speculators would lose much of their potential gains from the investment.
Without some action along that line, CDS obligations could become a black hole for the banking system, he and others warn.
"These things are like land mines," says Michael Greenberger, a former regulator of derivative contracts at the. "Every indication is that they are at the heart of the financial crisis."
He says a first step is to take an inventory of CDS contracts, since poor regulation makes this market opaque.
He also says it may be necessary to push speculators to take a hit on the value of their contracts. This might be in their interest, he says, since the companies offering the contracts might not survive if they must pay the full amount