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They took short positions, which some speculate started rumors that Lehman Brothers was going down. Short-selling is somewhat viewed as un-American because you're betting that the company will fail.
So what specifically did these hedge funds do to benefit from a bankruptcy?
Did they just borrow an I-banks shares of itself and short that?
Probably a bunch of different financial instruments, though the article mentions Credit Default Swaps, so he probably made a bunch buying those.
Good story nonetheless, though this question in the passage was interesting:
"If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down?"
I dont think there is anything wrong with it. Its not that he was trading on inside information. Even if he did speak up, do you think anyone would have listed or cared? There were multiple people out there warning of the credit/housing issues that his one voice would not have made a difference.
but how much could they possible make by shorting it compared to some regular trader who also just regularly sold his shares at the same time the short seller sold
I know the short seller does not have to spend money to buy the stock in the first place unlike the regular trader, but dont they also have to pay a fee to the person loaning?
Probably a bunch of different financial instruments, though the article mentions Credit Default Swaps, so he probably made a bunch buying those.
Good story nonetheless, though this question in the passage was interesting:
"If he saw all of this coming, was it right for him to keep his own counsel, quietly trading while the financial system melted down?"
I dont think there is anything wrong with it. Its not that he was trading on inside information. Even if he did speak up, do you think anyone would have listed or cared? There were multiple people out there warning of the credit/housing issues that his one voice would not have made a difference.
who can buy a credit default swap? Is it only people with certain licenses or a certification?
How do you know a bank has been loaning out money to people who they shouldn't be receiving loans?
They took short positions, which some speculate started rumors that Lehman Brothers was going down. Short-selling is somewhat viewed as un-American because you're betting that the company will fail.
Not a hard bet with the typical US MBA operated corporation.
who can buy a credit default swap? Is it only people with certain licenses or a certification?
How do you know a bank has been loaning out money to people who they shouldn't be receiving loans?
I dont know how a normal person would invest in CDS; sounds most transactions are done within bankers in financial institutions, hedge funds, and the like. Its not regulated like stocks via an exchange, though there is talks of CME setting up a clearinghouse/settlement operations for CDS in the future.
Also, hedge funds are highly leveraged, so assuming Paulson's fund was leveraged, his gains were amplified.
if so doesnt he have to pay that money back with interest?
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