Warren Buffet is one of the weapons of mass destruction.
You don't need a ban on those. You just need a simple regulation that you must own the security covered by the CDO/CDS, and cannot purchase coverage in excess of what you own.
Then they revert back to being insurance instead of a novel way of shorting the market. Allowing someone who doesn't own a security to purchase a CDO/CDS for it would be akin to me being allowed to take out homeowner's insurance on my neighbor's home - and if that happens, note that I have a vested interest in it burning down.
My business which is very sensitive to the economy is in the tank after having had the best month ever in February, this is already a double dip for me.
http://en.wikipedia.org/wiki/Credit_default_swap
A holder of a bond may buy protection to hedge its risk of default. In this way, a CDS is similar to credit insurance, although CDS are not similar to or subject to regulations governing casualty or life insurance. Also, investors can buy and sell protection without owning any debt of the reference entity. These naked credit default swaps allow traders to speculate on debt issues and the creditworthiness of reference entities. Credit default swaps can be used to create synthetic long and short positions in the reference entity.[4] Naked CDS constitute most of the market in CDS. In addition, credit default swaps can also be used in capital structure arbitrage.
The needed regulation is quite simple - you must own the security in question to purchase a CDS for it. No massive bureaucracy needed to enforce such.