Credit-Default Swaps Should Be ‘Outlawed,’ Soros Says
Credit-default swaps are “instruments of destruction” and should be “outlawed,” said George Soros, the billionaire hedge fund manager who made money last year while most peers posted losses.
“Some derivatives ought not to be allowed to be traded at all,” Soros, 78, told a conference in Beijing today, citing credit-default swaps. “The more I hear about it, the more I realize that they’re truly toxic.” Derivatives should be as tightly regulated as stocks, he added.
Regulators in the U.S. and Europe have been working on plans to control derivatives markets after the collapse of Lehman Brothers Holdings Inc., which was among the biggest traders of credit-default swaps. American International Group Inc. was rescued four times by the U.S. government to the tune of $182.5 billion because of losses using the swaps.
Still, Soros, whose company oversees about $21 billion, said that regulation should be kept to a minimum because regulators were “more imperfect than the market.”
In April, Soros said hedge funds should be regulated like other financial firms and that it would be appropriate for authorities to monitor positions to see whether some managers have “excessive exposure.”
Credit-default swaps, designed to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
Currency Bets
Global financial institutions have reported more than $1.4 trillion in writedowns and losses in the financial crisis that started with the meltdown of the U.S. subprime-mortgage market in 2007, according to Bloomberg data.
Hungarian-born Soros gained fame in the 1990s when he broke the Bank of England’s defense of the pound and drove the currency from Europe’s system of linked exchange rates. He also successfully bet that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and Japanese stocks would start to fall in the same year.
bloomberg.com
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