Thoughts on CDS

This short answer is simple. And it can be answered by this question:

If the uptick rule is so important, then why not also have a downtick rule?

But to really get into this subject you need to talk about the liquidity of the underlying markets, the fact that buying equity puts without owning the equity (talking about insurable interest, really) does not raise actual borrowing costs for firms with the underlying debt, the reason(s) for the formation of the CDS market, varying levels of leverage allowed in each market, notional capital values you need in order to participate in each market, etc. I could add a few more items on this list.

But chiefly and the most simply detailed explanation is this -- While the equity value of company can be temporarily hurt via intense speculative put pressure, it's highly unlikely to result in enough pressure to cause a debt default or totally stop the flow of future credit funding to an entity requiring revolving debt. In fact, many equities(companies) have no debt so you can attack the equity value all day long and not impair the "solvency" or funding sources of the company.

On the other hand, apply enough speculative pressure on the swap spreads of an entity (which has and requires debt) and you can completely strangle the funding mechanisms, thus killing the entity. Remember Bear Stearns and Lehman?