The agency will repay the lender in case of default.
Mentions a new law, incorporated into the Bankruptcy Act which establishes procedures in case of default.
Nations would be required to change their legislation to allow their debt issuers to seize the public assets financed in the case of default.
In the case of default, banks could repossess the property and sell it for more than the amount of the original loan.
A seller of land that had been sold at one hundred pounds, for instance, deliverd to the buyer a bond promising two hundred pounds in case of default.
The contract contained a schedule of deliveries, a liquidated damages clause applying to late deliveries and a cancellation clause in case of default by Loral.
Michael Werner of Sanford C. Bernstein, an investment bank, also points out that such a reform would help by giving legal remedy in case of default.
Though the swaps pay off only in case of default, the swings in price also allow buyers to hedge against fluctuations in the price of the underlying bonds.
The final bill must ensure that derivatives are traded on transparent exchanges and processed through third-party clearinghouses to guarantee payment in case of default.
"The worst that can happen — in the narrow case of default — is they can stop funding," said Bruce Bennett, one of the Dodgers' lawyers.
