Allowance Reverse Default Swaps
└ posted on Thursday, 1 January 2009, by Novil
I’m quite sure that Sandra’s little scheme would not work in reality. But then, I’ not sure sure, and we all can see how this ended for Wolf & Kleiber Ltd.
Since a normal “swap” didn’t seem to be exotic enough, I made up the term “reverse swap”… just to discover that such a thing actually exists!
- News: Blah blah blah global financial crisis blah blah blah short selling stocks and derivatives blah blah blah … speculators are already looking for new investment opportunities.
- Sandra: ?… !
- Sandra: I will no longer tidy up my room, Daddy.
- Richard: No? Then say bye-bye to your pocket money.
- Sandra: That’s the point! I’ll issue put options on allowance reverse default swaps on the New York Stock Exchange!
- Sandra: One day before my allowance day, I’ll start short selling the options and thus create an artificial demand for the reverse swaps. They’ll be worth a fortune!
- Richard: … Wait, what?
- Anchorwoman: Business news. The hedge fund Wolf & Kleiber Ltd. had to file for bankruptcy yesterday after losing 2 billion dollars in a gamble with junk bonds issued by the local company SN Financial Services.
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