What do you do when you cannot afford to pay your debts? You blame the speculators.
The European Union, emulating the failed American measures from 2008, has discovered the Holy Grail to solve the debt crisis: banning short-sellers in bank shares and buyers of Credit Default Swaps against selected governments.
As you may know, a short seller is someone who borrows financial instruments (e.g. stocks or bonds) and sells them in the expectation that he will be able to buy them back a lower price and return them to the seller for a gain. In other words, the short-seller expects the instrument to go down in price. Politicians hate short sellers as these often uncover problems before everyone else. The accounting fraud at Enron, for instance, was discovered by short sellers months before the regulators or the rating agencies even suspected that anything wrong was afoot. Had it not been for those speculators, it is conceivable that more people would have lost money investing in Enron stocks and bonds.
Similarly, a CDS is an insurance policy against default. For example, if you owned Greek bonds, you could buy an insurance policy (the CDS) against a Greek default, which is now extremely expensive. One can also buy the CDS without owning the bonds which is akin to short-selling.
Naturally, if you are, for example, Sarcozy pretending that France is a first rate power with a AAA-rated credit, just like Germany. You hate to see those pesky speculators betting on the fact that you are not. Unfortunately, for monsieur Sarcozy, most speculators do not reside within the confines of the European Union but in countries like Switzerland where the politicians couldn't care less about who speculates on what.
C'est la vie.
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