A lot of ambitious code has been written into the law for those and we will have to see if it actually works, if we have another example of a big financial institution going bankrupt.

I don't think the idea of requiring these to be only sold to people who have already own the bonds, in other words, this naked position that the Germans have recently put into their financial regulation and has been discussed here. I don't think that makes any sense.

I think that's something that investment banks have worried about for a long time and are continuing to worry about, but it's not an easy solution when you have lots of people betting the company's money, how do you really allocate those risks? How do you make sure that the people that take the risks are feeling the risks in an appropriate kind of fashion?

Credit default swap gives you something to do. You can buy some credit default swaps from them to protect yourself against the bankruptcy of people who owe you money.

If you have information that a company is not as good as its stock market valuation, you don't have a way to sell that stock unless you already own it. And so that information doesn't get incorporated in the company's stock price as fast if you don't allow short selling.

The collateralized debt obligation, the CDO, is a structure which allows you to more or less continuously choose how much risk you want to take in a whole batch of securities. And the reason why they got us into so much trouble is that it's hard to figure out how much risk you really are taking.

I think what we need is better understanding of how to do risk analysis of a CDO, but that they still can perform a very valuable function because they can aggregate these risks and pass them around so that mortgages or other kinds of loans can be packaged and sold to investors all over the world, who in most times, would justify a small amount of each one.