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Here's Why S&P Downgraded U.S credit rating: a $1 Billion Bet

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vonarrow Donating Member (60 posts) Send PM | Profile | Ignore Fri Aug-05-11 11:37 PM
Original message
Here's Why S&P Downgraded U.S credit rating: a $1 Billion Bet
Edited on Fri Aug-05-11 11:47 PM by vonarrow
http://www.progressivepeoplepower.com/index.php?itemid=...

Jobs & Economy Blog
<b>Here's Why S&P Downgraded U.S credit rating: a $1 Billion Bet!</b>
By: Admin
President Obama should investigate who placed this bet.


They KNEW S & P was going to downgrade U.S. credit rating.

.r o n

The $1 Billion Armageddon Trade Placed Against the United States Bond Market
Interest-Rates / US Bonds Jul 25, 2011 - 06:04 AM
By: Money_Morning

Jack Barnes writes : Someone dropped a bomb on the bond market Thursday - a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn't placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to... ... have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

You only do this if you see an edge.

This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up.

I believe what happened is a debt-ceiling deal was done in Washington and leaked to a major proprietary trader. Everyone knows the debt negotiations in Washington have been an extreme game of brinksmanship between political parties, but now someone knows how that game played out.

This had the hallmarks of one of the largest bond shops in the world knowing something the rest of the market didn't.

The number of shops or even central banks that can take on this level of market risk is extremely small. Some that come to mind are hedge fund manager John Paulson, Bill Gross's PIMCO, and the U.S. and Chinese central banks.

Paulson already scored big - about $6 billion big - on a similar trade years ago when he bet against subprime mortgages, the investments that helped bring down Lehman Bros. and many other investors.

Whoever was behind it wanted a trade on ASAP, and didn't care about the ripples they would cause.

http://www.marketoracle.co.uk/Article29477.html

http://www.ProgressivePeoplePower.Com
Reich: "We don't have a budget crisis. We have a jobs and growth crisis. Standard & Poor's has warned it will downgrade the nation's debt from a triple-A to a double-A rating if we don't tend to the long-term deficit. But, as I've noted, S&P has no business meddling in American politics - especially since its own non-feasance was partly responsible for the current size of the federal debt (had it done its job the debt and housing bubbles wouldn't have precipitated the terrible recession, and the federal outlays it required)."
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dkf Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-05-11 11:41 PM
Response to Original message
1. We knew we needed $4 trillion in deficit reduction.
When I saw the agreement I was thinking they would have egg of their face if they didn't downgrade.
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bhikkhu Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 12:35 AM
Response to Reply #1
5. ...and I recall that they were looking for revenue increases
and the teabaggers in congress had enough votes and were willing to see default before increasing revenue, and we (speaking very collectively) voted those guys in knowing that. So a certain national idiocy comes home to roost.

I hope the impact is small and temporary, but I can help but look at the overall flow of money on the bond markets internationally as a kind of democracy. For many years it has voted for us, but why would it not vote for Canada, or Germany, or China, or some other system with greater returns, that is more functional?
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Renew Deal Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-05-11 11:48 PM
Response to Original message
2. It can be argued that the information was out there.
S&P had a downgrade warning and the debt deal looked like it was going to be weak and one sided.

But I agree. I bet there's something dirty behind that bet.
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flamingdem Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 12:28 AM
Response to Original message
3. Nobody risks a billion without inside information, this is just more piracy nt
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Hestia Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 12:29 AM
Response to Original message
4. We'll just have to watch which employee(s) leave for a private equity firm...
or a chair in a think tank
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TalkingDog Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 12:42 AM
Response to Original message
6. I nominate Eric Cantor
Since he already made that bet back in 09
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Lorien Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 01:38 AM
Response to Reply #6
7. A billion? More like the Koch brothers. nt
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arikara Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 01:43 AM
Response to Original message
8. Why are they even allowed to do that?
What a stupid shitty system. Thank goodness its going down the tubes.
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jimlup Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 10:19 PM
Response to Reply #8
11. Problem is that they will try to take us down first...
That's how these sick institutions work. They prey on those with lesser means. Yeah I agree - they are going down but not before the crash everything first.
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plumbob Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Aug-07-11 01:18 PM
Response to Reply #8
14. Yes, it is stupid and shitty, and that's why those who use it to rob
us have to own the politicians to continue to allow it.

No rational country would allow anyone to bet money on a fail happening, especially when so many people can help make it happen.
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999998th word Donating Member (555 posts) Send PM | Profile | Ignore Sat Aug-06-11 03:20 AM
Response to Original message
9. Wasn't the ALEC conference this week in NOLA ?
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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 10:26 AM
Response to Original message
10. Thanks for the post
money, like blood, will tell
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truedelphi Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Aug-06-11 11:03 PM
Response to Original message
12. K & R for reading later.
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tanyev Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Aug-07-11 10:23 AM
Response to Original message
13. Same person who placed the pre-9/11 put options?
Whoever that may be?
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