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The $4.5 Billion Dollar Bank Run
Nov 07 201111:20 am EDT -
The Times' Rorshach Geithner Story
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Counter-cyclical Urban Policy
Apr 26 200910:00 am EDT -
Be Your Own Counterfeiter
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Being Tim Geithner
Apr 25 200912:37 pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:41 am EDT -
What Good is the News?
Apr 25 20098:32 am EDT -
Stressful Enough
Apr 24 20092:29 pm EDT -
Not Regretting the Pound
Apr 24 20091:09 pm EDT
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How Derivatives Traders Can Also Be Heroes
What's the opposite of a vulture? Vulture funds, in popular imagination (if not in reality), buy up debt on the cheap and then profit from the distress of others by trying to maximise the amount of money they can extract from their debtors. But what would you call someone who buys up debt on the cheap and then tries to profit by helping out the debtors as much as possible? If you're a normal person, you might call such a trader a hero. If you're hedge-fund manager John Paulson of Paulson & Co, however, you accuse people of market manipulation.
The problem seems to be that Bear Stearns has sold credit protection on subprime-backed securities to Paulson. If Bear does nothing, it has to pay out on its insurance contract. But if it buys up the underlying mortgages and restructures them so that the homeowners don't end up defaulting, then Paulson gets nothing.
That's a great trade. Good for Bear. Paulson just got out-traded, is all.
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