Unnamed Hedge Fund or Investor Earned $10 Billion Betting on U.S. Downgrade
Posted: August 8, 2011 Filed under: U.S. Economy, U.S. Politics | Tags: Eric Cantor, gambling, George Soros, hedge funds, Standard and Poor's, The Daily Mail 22 Comments
A mystery investor or hedge fund reportedly made a bet of almost $1billion at odds of 10/1 last month that the U.S. would lose its AAA credit rating.
Now questions are being asked of whether the trader had inside information before placing the $850million bet in the futures market.
The Daily Mail suggests this might involve George Soros, but a knowledgeable source denied it. The article also suggests that whoever made the bet could have had inside information–arguing that Obama and Geithner seem to have known for some time that a downgrade by S&P was in the works. Of course The Daily Mail is a conservative rag.
The latest bet was made on July 21 on trades of 5,370 ten-year Treasury futures and 3,100 Treasury bond futures, reported ETF Daily News.
Now the investor’s gamble seems to have paid off after Standard and Poor’s issued a credit rating downgrade from AAA to AA+ last Friday.
Whoever it is stands to earn a 1,000 per cent return on their money, with the expectation that interest rates will be going up after the downgrade.
Recall that Eric Cantor was revealed to have an investment that would have paid off handsomely if the U.S. had defaulted. Salon reported on June 27:
Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested in ProShares Trust Ultrashort 20+ Year Treasury EFT. The fund aggressively “shorts” long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable. (A short is when the trader hopes to profit from the decline in the value of an asset.)
According to his latest financial disclosure statement, which covers the year 2010 and has been publicly available since this spring, Cantor still has up to $15,000 in the same fund. Contacted by Salon this week, Cantor’s office gave no indication that the Virginia Republican, who has played a leading role in the debt ceiling negotiations, has divested himself of these holdings since his last filing.
Why are these kinds of investments bets even legal? This is nothing but high stakes gambling, and it’s just plain wrong.
peej
Carissa
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Mona (aka Wonk the Vote)
Sky Dancing 
Where are the Murdoc hackers when we really need them?
Thanks for that Cantor link for my files.
I guess we’ll find out who it is eventually–if it’s true.
wow – if I held shares and was part of the governing body that was discussing how to handle the econ – I personally would think I should divest or I’d have a conflict of interest.
I don’t get the logic here. If the investor made bets on a downgrade, then the investor thought it would cause rates to rise. Rates fell. The investor is underwater and losing money, not making a profit. Has two months for this to turn around or out the entire $850MM (if this is even true). Seems like a fake story.
CSM: Dow drops 1,147 points over three trading days. Is that a ‘crash’?
Apparently the answer is “not quite.”
“not quite yet.”
Remember how we were supposed to believe that giant tumble in September of ’08 was a “fat finger?”
I wonder who made out like bandits on that one…I’ll bet it’s the same person or people.
Hedge Fund or Investor Earned $10 Billion Betting on U.S. Downgrade
the fix was in. The down grade like the debt kabuki was contrived BS….they want Shock Doctrine here.
Yep — Sock Doctrine gets rid of the middle class — ending up with two classes — Very very rich and servant/poor class. Pensions (which is what SS is — paid for by the working class) are looted. The first round of looting of pensions took place during Raygun’s time in office. When the big corporations were buying and selling off bits and pieces — very often the pensions got lost along the way. I know because I watched it happen. I’m going to have to re-read that book. However, that author was an 0bama fan — so even she couldn’t see the handwriting on the walls.
The big b o m b coming — are the retiring baby boomers. My husband is pre-boomer — so we’ve had a front row seat. We also live in an area with lots of retired folk — who are doing quite nicely with Pensions, SS and investments. But I don’t think that the money will be there for the ones who plan to retire in the next few years (or months). The Wall Street crooks have had their eyes on the pension funds for quite some time.
And I hope that I’m wrong about this. I also have lots of relatives with military service who are expecting military retirement income — and I’ve been reading discussions that this is also on the chopping block.
However, that author was an 0bama fan — so even she couldn’t see the handwriting on the walls.
oh she saw it…but decied to stay alive and so jack booted for Barry …as did all the ” Obama Now-Democracy Now ” show regulars . The titanic forces at work stealing the trillions are hard to wrap one’s head around…
also have lots of relatives with military service who are expecting military retirement income — and I’ve been reading discussions that this is also on the chopping block
why wouldn’t it be? They have stolen from the VA for years already…that’s the other shoe
In the Over Lord’s world view, one is either in the green zone with them or on a garbage heap.. the sooner the better
I’ve been busy scanning all the econ blogs I can find — from the econ blog list to the right and other lists.
Seems that Standard & Poor — is a tool of Wall Street and perhaps even the nasty conservatives. S & P is owned by a publishing firm — McGraw Hill — or is a division of the Corporation.
S & P apparently is the rating company that gave AAA ratings to the crap bonds that helped the big financial crash of 08. Then the banks etc. needed bailing out by the US tax payers so that they could give their huge bonuses to employees.
Naked Capitalism says that 0bowma “ownes this crisis”. That is an article worth reading and copying for your files.
There is a general message that this “crisis” is theater — and some bloggers even use the words — crisis theater.
Exactly…they want a market Katerina to ” soften” things up for stealing and a reshaped goverment .
A bit off topic – does anyone know what Move On is doing – are they solidly in the Obama camp this time???
does anyone know what Move On is doing
whatever they are told
lol!
They are whining that they won’t send Obama any money or campaign for him. Of course, they assure him that they’ll vote for him anyway – so why should he give a flying f*ck?
They proved to be asshats in ’08, they remain that way now.
Asshats.
Hillary 2012
Ultrashort funds try to return 2x of whatever the underlying is doing is, but they usually aren’t that accurate. They are also highly volatile, obviously, because you can lose 2x too.
Look at his 2010 return. He has lots of holdings, this 2x fund is not a major investment. It’s probably just a hedge against drops, and this is common with those with large holdings. He probably has some 2x longs in there too.
A holding of $1,000-15,000 is chump change. If it was 50% of his holdings then it would be a legitimate issue.
As for the unnamed hedge fund, yes, this reeks of insider trading.
Who cares how much was involved? Cantor shouldn’t have been permitted to particpate in the negoiations. Period. I hope he loses his seat in 2012. He’s evil.
Where are the regulations? How is it that a politician can have investments when they can influence policy that affects the same?
As for these bets on loss ratios and downgrades, you’d think that would be illegal somehow wouldn’t you. After reading about ALEC in Dakinat’s morning hitlist, nothing surprises me anymore. We definitely have a Shadow Government and its time to burn the house down. I always suspected it but they’re not even in hiding any longer.
The regulations have been eliminated. That’s how the housing bubble happened.
He (Cantor) should be charged with a crime………
He and all the rest of the congress critters who are betting AGAINST the US economy. Traitors — all.
Take a look at this chart I found on Wikipedia
At the year 2000 mark — world wealth and total world derivatives were about equal and then the line for world derivatives starts heading sharply for the sky. I’m wondering what that chart would look like if it extended to 2010?
There is a whole hell of a lot of betting going on. No wonder the banks aren’t loaning and are falsely foreclosing. I’m wondering how many are still playing with derivatives (betting)???