TUCSON, AZ, March 23, 2009 /24-7PressRelease/ -- Warren Buffet described credit default swaps as "financial weapons of mass destruction" (http://tinyurl.com/5yudhn). Credit default swaps are insurance policies that businesses take out on each other in case they default or are unable to make payments on their debt. They generally last for a short period of time (1-5 years), an insurance premium is paid (i.e. $100,000/year) and the policy is paid if the specified company defaults on their debt (policies can cover large amounts like $100 million). The industry has been completely unregulated though and businesses have been able to secure contracts in one minute phone conversations or instant messages for policies valued at tens of millions of dollars (http://tinyurl.com/5yudhn). Also, businesses can enter credit default swaps regarding companies they have no direct ties with. For instance, a local credit union in Hawaii could take out a credit default swap worth $10 million if General Motors defaults on their debt. As you should see, a local credit union in Hawaii should not have any direct support to General Motors, its parts suppliers or employees. Credit default swaps have become a form of gambling (my company bets $100,000 a year that this company will fail in the next five years and if I win, you pay me $10 million). One of the main reasons why AIG has failed and is failing is because they were a big issuer of these gambles, but did not set enough money aside to pay off the policies if they lost (http://www.reuters.com/article/newsOne/idUSMAR85972720080918).

The National Cancer Institute defines cancer as abnormal cells dividing without control and are able to invade other tissues (http://www.cancer.gov/cancertopics/what-is-cancer). Cells normally divide and replicate. They do not normally replicate out of control and invade other tissues. The reason why a cure for cancer is so hard to discover is that taking a drug that stops cells from replicating would kill us. Also, creating a drug that stops cells from traveling to other tissues would not work since we have cells in our blood that visit other tissues that serve a useful purpose.

All credit default swaps should not be declared illegal since that would be like keeping all cells from dividing. All credit default swaps regarding certain companies should not be declared illegal since that would be like a medicine targeting a certain type of cell which would kill the healthy or useful cells. Credit default swaps issued for a company that has directly invested or loaned money to the company with a potential default should be honored. The value of the policy should be no more than 110% of the actual loan amount (extra 10% for administrative costs with defaults). The following is irrational: Company A loans Company B $10 million. Company A takes out a credit default swap for the loan to Company B. Company A receives $100 million if Company B cannot pay off its debt.

The credit default swap market has been estimated at $62 trillion (http://www.marketoracle.co.uk/Article6763.html). The swaps are interlaced throughout all countries. An insurer in one country may be providing a credit default swap to a company in another part of the world regarding a company that could default in a completely different country. If World Governments put pen to paper and declare all credit default swaps illegal except those outlined in the preceding paragraph, they will orchestrate a financial miracle as we are facing a potential domino effect of bankruptcies (one bankrupt company causing other bankruptcies due to abrupt drops in cash flow). For financial relief, companies that have swaps which are declared illegal should be given a tax break on the premiums they paid and insurers should be required to maintain enough cash to cover a percentage of each issued policy.

Just as someone with a tumor gains hope when they learn of a medicine that can eliminate the threat of decreased health and potential death, global consumers may get hope from coordinated efforts by our governments to prevent financial collapse.

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