>"Deregulation" in general is not the problem, it's the manifestation of that concept which can lead to problems.
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>Some people would argue that "deregulation" is a misnomer since the status of CDS always has been vague and that the problem is that bankers treated Gaussian copula formulae as an oracle which even their inventor (who subsequently moved to China to take up a role in their financial risk management strategy) said is not safe. Presumably the devil made the bankers do that, too. ;-) And so the debate rolls on. ;-)

Even bankers knew these things were speculative, about the farthest thing imaginable from traditional insurance. (Did you know that when they first appeared legislation was passed specifically exempting them from gaming laws?). One of the many objectionable things about the A.I.G. case is that the banks and investment houses who bought this "insurance" are apparently being made whole on their investments. By us, the taxpayers, of course. Gretchen Morgensen of the NY Times asked the very good question the other day, Why weren't these guys forced to accept a "haircut" rather than being made whole?