The peculiar power of the CDS has now been unlocked, plumbed and appreciated. Consider this: If some people have a significant profit incentive to vigorously attack or undermine the creditworthiness of cities, counties and states, a formula for chaotic strife is revealed; but, in chaos there is profit. Might not CDS's be profitably applied to sovereign debt or municipal bonds?Applied to municipal bonds, the CDS tool or its ilk might wreak true disaster at a national scale by creating incentives for short sellers to profit in ways not previously imagined.How might this occur? I feel compelled to avoid too detailed a schematic of such an approach.However, first, find someone to take the other side of the right bet for a relatively small price (bonds are often insured), and hope for or make the market price for municipal bonds fall.A potential Achilles' heal of governments is the annual employer pension obligation, sensitive as they are to "discount rates" or earnings on investment projected out 20 or 30 years, and which are used to calculate present annual payments to be made from the government's general fund to the pension plans. Hence, see the Nunes-Issa-Ryan legislation discussion above.What if America prevented CDS's from functioning by stepping in to insure, guarantee or prop up government bond prices, once attacked? After artificially increasing the apparent obligations of public pensions through his proposed legislation, here's what Congressman Nunes offers as a sound-bite: "Congress must preempt this effort by making a clear policy statement that the American taxpayer will not bailout state and local governments that have recklessly promised unaffordable benefits to their workers." Set 'em up, and knock 'em down!Yes, America, we can bail out AIG for absurd Wall Street bets, but government employees shall suffer the loss if anything goes wrong. Best of all, short sellers of municipal bonds may well enjoy another payday.The Hounds of Credit are best watched closely and kept on a tight leash.