I started thinking today, that one of the core reasons why the credit market has frozen up is because of the fear of buying bad mortgages that will lose money rather than these mortgages being so bad that they will lose money. Now, if you could eliminate the fear you could get the credit markets operating again and it is possible that the losses will be much smaller than people really expect.
I started thinking that if you promised ‘money’ to give the appearance of protection you might be able to solve this problem without spending much money at all. A solution I came up with that met these requirements was to create a short term Capital Loss-Haven where capital losses generated on credit-default-swaps were tax deductible at 1.5 times the value lost.
