Seriously, the good folks at Citi are planning to start selling, “derivatives intended to pay out in the event of a financial crisis.”

That’s right, they are creating instruments that will allow people to bet against our financial system, and win if they, or their friends take it down:

Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs.

(emphasis mine)

Seriously, if our forfathers understood the need to prevent this sort of casino gambling masquerading as insurance when the parliament passed the Marine Insurance Act of 1746, no that’s not an error, taking out insurance on something in which you have no interest in the continued existence of the insured property has been illegal for 264 years, because otherwise, people do things like take out insurance in their neighbor’s house, and then burn it down.

These people are terrorists under the (admittedly lax) standards of the PATRIOT act and its successors, and they should be pursued as such, with all the jurisprudence that Dick Cheney wants for suspected al Qaeda members.

H/t Felix Salmon, who crystallizes the basic point rather clearly:

We learned in the crash of 1987 [and 2001, and 2008, me] that when financial markets start selling products which insure a portfolio against catastrophic loss, the very existence of those products can destabilize the market and make it more prone to crashing. And, of course, we learned that such insurance has a tendency not to get paid out on exactly when it’s most needed. But heaven forfend that the market should ever learn from its mistakes.

We need hand cuffs for dishonest and delusional bankers today, or we’ll need pitchforks, torches, tar and feathers for all bankers tomorrow.