1)There are no requirements that contracts be enforceable.
2)You can’t enforce what you can’t find.
If you want to get legally pissy and claim that the contract is "enforceable" against some hedgie with 10 million in assets who puts 4 million (or more!) up on a single CDS, in the Canary Islands, then I will retract my statement.
Is the hedgie in your example buying or selling the CDS?
They are eminently enforceable for every dime these clowns don't got. They can, will and HAVE simply scooped up their remaining assets, closed up shop, and walked away.
Counterparty risk is not the same as "unenforceable contracts".
I am not a lawyer, and the term "unenforceable" has obviously set you off, so I should say that the contract itself is legally unenforceable
Goldman buys a CDS from Merrill. Is it enforceable? Why?
THAT is why it matters that many of these CDS instruments originated overseas.
Buyers or sellers are overseas?
You never posted an explanation for your previous claim, "For example at least 2 billion dollars of CDS risk from SOMEONE is now gone and unenforceable because of Bear Stearns". You have a link that explains your point? Thanks.
YOU:
1)There are no requirements that contracts be enforceable.
2)You can’t enforce what you can’t find.
If I enter a contract with you for something, it is common to place a jurisdiction clause in the contract, so that litigation occurs in a particular jurisdiction. You have seen the ISDA forms, haven't you? Is there any specificity as to court jurisdiction in those? NEVER. There is no demand that you demonstrate that you have the assets you say you do! You have an "enforceable contract" only in the sense that the court can command the corporation (if it still exists) to pay any money you haven't withdrawn towards the contract obligations.
Is the hedgie in your example buying or selling the CDS?
In this particular case, they sold. Citi is trying to collect.
Buyers or sellers are overseas?
The big problems we have seen so far are sellers in default. What remains to be seen is what that does to the portfolios of institutions who thought they had hedged mortgages/bonds with the promised returns of that defaulted swap, so I would say "both" but with the emphasis on the overseas seller for right now.
The rest of your post is essentially taking me to task for using the term "unenforceable" when I should have used the term .... what? "Defaulted?" OK. I dont' have any problem with saying that just because you can't make an obligee pay that you should not use terms like "fraudulent" rather than "unenforceable." You then asked me for a link for the 2 bil in defaulted Bear Stearns CDS obligations. I ran across this back when they rolled over. I will look for it. I am sorry not to have it at my fingertips.