What do you do if one fifth of a state’s revenue comes from an industry in crisis? David A. Paterson thinks the answer is to intervene. He is the governor of the State of New York and decided to regulate the Credit Default Swap (CDS), a kind of credit insurance with an estimated market of US$ 62 trillion.

More frightening than the volume of swaps, is knowing that the market was not expecting any kind of regulation. But this changed starting on January 1, 2008, when CDSs started being regulated by the New York State Security Department.

The solution they found was to fit CDSs into the concept of insurance, an activity regulated by the state government. In a statement, the governor explained that the idea is to implement solvency rules for these operations, like those that apply to other financial products. Paterson, who admitted to finding out about CDSs only six months ago, understands that the product was the main thing responsible for the problems faced by insurer AIG. “CDSs should be regulated like gambling, because that’s what they are.”

The Federal Reserve and Treasury Department did not comment on the measures in New York. Before the federal government announced its aid to banks, the state of New York had already allowed AIG to raise R$ 20 billion from its subsidiaries in order to bulk up their capital.

Paterson assumed the governorship in March of this year, after the accusations of a Brazilian brothel madam brought down former governor Eliot Spitzer. His taking office caught the public’s attention due to Paterson being almost blind. The problem was generated by an eye infection suffered in childhood, which took away about 90% of his eyesight. Today, nobody complains about his vision.