Posted on 10/03/2008 3:03:31 AM PDT by TigerLikesRooster
Short-selling on U.S. states can pay off
By Mary Williams Walsh
Friday, October 3, 2008
While regulators were sprinting to save the financial system last month, someone was making a lot of money — by betting against the State of New Jersey.
It is not clear who. But trading records suggest that in the panicked days when exotic derivatives were bringing the American International Group to its knees, traders were using the same kinds of derivatives, called credit-default swaps, to profit from New Jersey's rising tide of red ink.
Speculators have long been able to short-sell stocks, making money when share prices fall. But derivatives are now making it possible, in effect, to short municipal bonds. If you think you are the first to determine that New York's budget is going to suffer because of the financial crisis, then you, too, can wager on it.
The world of municipal finance has many hidden weak spots — the very playground of short traders — because governments are required to disclose far less about their finances than companies are.
"There are hedge funds that already, for at least a year, have been getting into this," said Douglas Love, an economist and a member of New Jersey's State Investment Council, which oversees the investment of that state's pension fund. "It's a sophisticated game and it has risks. But that's the market."
This form of market betting could force local governments to face up to long-simmering problems instead of sweeping them under the rug. But it could also increase the cost of raising money or, in an extreme case, drive investors away entirely if a city's finances are perceived as shaky. Already, the housing slump has left some places struggling to balance their budgets as revenues dwindle and the credit crisis takes its toll.
(Excerpt) Read more at iht.com ...
Ping!
Soros? That’s the way he does. (Money for nothing...)
The Credit Crisis: So What Happens now?!
It's focused on the specific outlook for New Jersey, but much of it can be applied to a lesser degree elsewhere.
And that is why the $825B bailout bill allows the Treasury to buy local and state govt debt in addition to mortgages etc.
I got a feeling a lot of this is tied to the blue states especially CA. They just mentioned they may need to borrow at least $7 billion......that makes their munibonds very suspect at this time in that the CA gov doesn’t have the money to pay their muni investors.
Well, now those in Red states may have to bailout for Blue states?
Not only that, the Lib slimes are belly aching for all the conservatives in this country (average American family that has lived within its means and saved) to bail them out on their stupid greedy beets and fraud committed to push their socialist agenda.
Yeah, that right, Bud. What’s it to you? Shouldn’t you and your wife be at work, or something, making income? Eh? Eh? You think you got a say, that matters, in this?
/big gov lefty sarcasm off
And if these guys "bet" wrong, the dems will have us bail them out...
And if these guys "bet" wrong, the dems will have us bail them out.
Maybe they can get Bush to go on TV and start a panic for them - makes the old shakedown easier...
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