Soverign CDS The Next "Big Short" Opportunity?
Posted: Mon Nov 14, 2011 10:10 pm
During the mortgage crisis, a few genius (or lucky) hedge fund managers shorted MBS and took insurance against CDS at below fair-market rates, because companies issuing the insurance (namely AIG) had no idea how risky things were.
I'd imagine it's too soon for people to have forgotten this, but maybe there's a similar opportunity with Sovereign Debt swaps?
I read in today's WSJ (along with millions of other people) about how large institutional banks are taking out CDS against their sovereign Euro-trash debt... and the counter party risk involved because the person writing the Swap might not be able to cover it, in the event of systemic failure.
I wonder if this is another Big Short opportunity? EU falls, all the CDS default, all the banks fail, pension funds wiped out.
Then again, considering how severe this would be, I imagine no governments could let it happen. It would lead to a global recession lasting decades.
I'm glad to be in the PP and not have to "worry" about it. But it is fun to think about and discuss
I'd imagine it's too soon for people to have forgotten this, but maybe there's a similar opportunity with Sovereign Debt swaps?
I read in today's WSJ (along with millions of other people) about how large institutional banks are taking out CDS against their sovereign Euro-trash debt... and the counter party risk involved because the person writing the Swap might not be able to cover it, in the event of systemic failure.
I wonder if this is another Big Short opportunity? EU falls, all the CDS default, all the banks fail, pension funds wiped out.
Then again, considering how severe this would be, I imagine no governments could let it happen. It would lead to a global recession lasting decades.
I'm glad to be in the PP and not have to "worry" about it. But it is fun to think about and discuss