How can those in the finance business justify this institutionalized legerdemain? What purpose do these instruments serve beyond rigging a Las Vegas-style enterprise? Are they not just another sophisticated and disproportionate toy in the Wall St. sandbox inaccessible to average investors, who (along with the tax-paying public) get crushed when these gambits go wrong? And the notion that the bettors then influence the game by orchestrating a default or artificially keeping a dying company afloat just long enough to win the bet? Absurd! Check this excerpt: RadioShack, the troubled consumer electronics retailer, is one of several prominent examples. In December, RadioShack’s total debt came to about $1.4 billion, but swaps outstanding on the performance of the debt totaled $23.5 billion. Similarly, J.C. Penney, the ailing department store chain, had total debt of some $8.7 billion, but swaps outstanding on the debt totaled $19.3 billion. Those gaps suggest excessive speculation, though it is hard, if not impossible, to gauge the precise exposure of funds to big losses. What is known is that a hedge fund that is betting on a company’s default has an incentive to push it over the edge. Conversely, a fund that is betting a troubled company will not default has an incentive to keep it afloat, at least long enough to avoid a big payout. Either way, the company becomes a pawn in a financial game. This isnt finance - its big game hunting in a private zoo.
Posted on: Sat, 03 Jan 2015 23:27:03 +0000
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