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.