George Soros, the legendary hedge fund manger, is now 78-years-old and as active as a man half his age, using his multi-billion dollar fortune to purse interests in philanthropy, political activism and writing (eight books and dozens of articles/speeches). On Saturday, he released his ninth book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.
He wrote in the Financial Times of London Friday that there are more shoes to drop in the credit crisis if authorities don’t prepare to head them off. One area is credit default swaps:
“Instead of reshuffling regulatory agencies, the authorities ought to prepare for the next shoes to drop …. There is an esoteric financial instrument called credit default swaps. The notional amount of CDS contracts outstanding is roughly $45,000 billion … The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfill their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred … One possible solution is to establish a clearing house or exchange with a sound capital structure and strict margin requirements to which all existing and future contracts would have to be submitted.”
