Einhorn Wants to Ban CDSs

FT: When Einhorn turns his back on CDSs it's time to listen

When one of the world's most renowned hedge fund investors turns 180 degrees on a key financial instrument that has been centre stage throughout the financial crisis, it is worth paying heed.

David Einhorn, founder of Greenlight Capital, was one of the earliest and most prescient users of credit default swaps. Now he is calling for these instruments, in effect a form of insurance on individual firms (or governments) that pays out when the institution defaults or restructures, to be banned.

"I think that trying to make safer credit default swaps is like trying to make safer asbestos," he writes in a recent letter to investors, adding that CDSs create "large, correlated and asymmetrical risks" having "scared the authorities into spending hundreds of billions of taxpayer money to prevent speculators who made bad bets from having to pay".

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