Soros: Tame Derivatives or Risk Yet Another Crash
Billionaire George Soros says the derivatives behind the Securities and Exchange
Commissions’ case against Goldman Sachs “merely cloned existing mortgage-backed
securities into imaginary units that mimicked the originals.”
“Whether or not Goldman is guilty, the transaction in question clearly had no social
benefit,” Soros writes in the Financial Times. “The primary purpose of the transaction
was to generate fees and commissions.
“This synthetic collateralized debt obligation did not finance the ownership of any
additional homes or allocate capital more efficiently; it merely swelled the volume of
mortgage-backed securities that lost value when the housing bubble burst.”
Requiring derivatives and synthetic securities to be registered would be simple and
effective, Soros says, but the legislation currently under consideration won’t
accomplish it.
Derivatives traded on exchanges should be registered as a class, Soros says. Tailor-
made derivatives would have to be registered individually, with regulators obliged to
understand the risks involved.
“Registration is laborious and time-consuming, and would discourage the use of over-
the-counter derivatives,” Soros notes. “Tailor-made products could be put together
from exchange-traded instruments,” he says.
“This would prevent a recurrence of the abuses which contributed to the 2008 crash.”
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