Are clearing mandates inefficient?

A new Cato paper by Craig Pirrong says yes, they are inefficient.  This is a  useful paper for sorting out some issues, because it argues consistently on a conceptual level.  I especially like the point about how clearinghouses re-order the line of creditors, in favor of members, whether you like it or not.  Overall, though, I'm not convinced by the main arguments against mandated clearinghouses.  The phrase "not necessarily" is invoked too many times.  Contra his p.24, it seems to me that clearinghouses would have had a strong profit incentive to monitor or limit the kind of risk-taking which led to the A.I.G. debacle.  The key point is that a clearinghouse can more easily be forced to carry heavy capitalization and said capitalization, unlike with a current bank, cannot so easily be undone by off-balance sheet transactions or hidden leverage.  The clearinghouse has different incentives and is much easier to regulate and therefore we should put some more trust in them.  CME and NYSE and others did fine in a period of major market turmoil, so why not consider extending this model just a bit more?

I would think the main argument against mandated clearinghouses for CDS is simply the hair-trigger, discrete, non-smooth nature of default-linked payoffs, and whether any centralized intermediary has the predictive power to handle that and to demand sufficient collateral.  Still, that is one way of putting CDS contracts to a non-TBTF commercial test, albeit a regulated commercial test.  My worries about the actual CDS clearinghouse you will find here.