At Davos, blaming unregulated markets

DAVOS, Switzerland (Fortune) -- This year's World Economic Forum meeting at Davos is supposed to discuss how to lift the world out of its economic and financial crisis, but not everyone is satisfied just talking about the problems. Aditya Mittal, for one, is trying to take matters into his own hands.

Mittal is CFO of the world's largest steelmaker, ArcelorMittal, which has taken a brutal beating over the past few months as worldwide demand for steel has crashed. He won't talk in detail about how the company is doing ahead of the publication of its earnings next month, but he acknowledges taking aim at something that both he and some other Davos participants consider to be one of the aggravating factors of the current crisis: the unregulated market for credit default swaps, a type of speculative insurance.

Mittal thinks that the credit default swap (CDS) market has massively mispriced the risks confronting ArcelorMittal (MT), and that the company is in far better shape than that pricing would suggest. So, he tells Fortune, he has been trying to short ArcelorMittal CDS's, in the hope of making a substantial profit when other market participants realize the true picture. His problem, however, is that he can't find any bank that will let him sell the CDS's short. Mittal won't say how big a bet he wanted to place, although it's in the "three figure millions" of dollars.

It's an extreme example, but Mittal isn't the only one who thinks the market for CDS's is completely awry. A substantial part of the discussion at Davos on the first day has focused on what has gone wrong -- and the two main culprits most often identified are the arcane mathematical models that were overly trusted by banks, and runaway derivatives and other unregulated markets, including those for CDS's.