The dollar value of the naked CDS market, Dinallo testified, accounts for more than the entire annual economic output of all the world's nations.
The problem is that neither party has any exposure to the bond's default. This is the ongoing theme of the entire current crisis: No one was willing to bear any burden for failure. The concept of failure -- be it of a risky mortgage or a corporate bond -- was financially engineered away and sent into a black hole with no one needing to take responsibility for it.
When the failure inevitably comes, it's the U.S. taxpayer -- and now, citizens all over the globe -- who are forced to take responsibility for it.