Hard upon the destruction wrought by Credit Default Swaps, some Banks that underwrite Municipal Bonds or "munis" are being asked to disclose their positions in CDSs. This is not a ban, mind you. This is a request for full disclosure, at least in California by the California Treasurer to Banks which underwrite California Bonds. One of the reported purposes of this request is to determine which Banks serve their own interests at the expense of California Taxpayers by using CDSs to "short" or bet against the success of the very California-issued Bonds which the Banks have underwritten. See Peter Thal Larsen and Richard Beales, "Disclosure, Not Bans" in "Reuters Breaking News," published on p. B2, col. 2 of the New York Times National Edition, "Business Day" Section for Thursday, April 1, 2010.
Credit Default Swaps are nothing more than unregulated Insurance. Participation in them should import a Fiduciary Duty imposed on many Insurance Companies including the Duty of Disclosure and the Duty to consider the interests of the other party -- in this case, to the Bonds -- at least as much as they consider their own. Insurance Companies succeed even after having these Fiduciary Duties imposed upon them by the Courts. Banks should also be able to succeed and to fulfill Fiduciary Duties, too.
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