Thursday, January 19, 2012

More corporate psychopathy

A Greek default is widely viewed as a potential trigger for a global economic meltdown, as it exposes banks to massive writedowns, and in turn governments to massive bailouts, creating a further liquidity crash. So naturally, hedge funds are trying to engineer one in order to profit from their Credit Default Swap contracts:

A group of hedge funds is threatening to block a last-ditch attempt to save Greece from defaulting on its huge debt pile, unless they are guaranteed a significant payout.

There will be a final attempt today – when a group representing Greece's private sector bondholders meets senior ministers in Athens – to negotiate a writedown of the value of the country's debt ahead of a crucial bond repayment deadline next month.

Sources familiar with the talks, which collapsed at the end of last week, have said that a number of hedge funds are holding up the restructuring deal to ensure that they make a fat profit, after snapping up Greek bonds at distressed prices.


This is because these funds are believed to have purchased insurance policies on their holdings of Greek bonds, known as Credit Default Swaps (CDS). If Athens fails to pay its maturing debts in March, that would trigger large CDS payouts to these funds from the large financial firms that sold them the insurance.

The hedge fund's position is simple: pay them a big bonus, or they destroy the global economy - and either way, they profit. And its a perfect example of how psychopathic our financial industry has become.

Blackmail should not be a business. Threatening to impoverish and immiserate billions should not be a business plan. Our psychopathic corporations need to be reined in, and made to behave ethically. If they cannot, they need to be broken up, so they will no longer be such a threat to society. It is that simple.