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Daily Insurance Industry News
Tuesday 14th of August 2018
June 14, 2009

Soros calls for ban on credit default swaps

by Gill Montia

Story link: Soros calls for ban on credit default swaps

George Soros is calling for a ban on credit default swaps (CDSs), which he has previously described as “financial weapons of mass destruction”.

Speaking at a meeting of the Institute of International Finance in Beijing last week, Mr Soros suggested that CDSs are encouraging debt-holders to put companies into bankruptcy.

The legendary investor cited the case of General Motors in this respect and described the CDS market as the equivalent to allowing someone to buy life insurance on someone else’s life while “owning a licence to kill”.

CDSs are a means of insuring company debt and are traded in a market that is regarded as lacking in transparency.

Little seems to be known of the size of the risks in the market or the extent to which specific financial institutions are involved.

However, the speedy rescue of American International Group (AIG) last October reflected the extent of its CDS activities.

At the time, analysts feared that if AIG followed Lehman Brothers into bankruptcy, entire Western economies could founder, partly because of the group’s CDS position.

 

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