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Bloodsport on Wall Street
Article

Bloodsport on Wall Street

Hedge Funds Make Mayhem for Profit

Claire Boston and Davide Scigliuzzo
Bloomberg Businessweek , 2019
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Editorial Rating

8

Qualities

  • Analytical
  • Eye Opening
  • Concrete Examples

Recommendation

Credit default swaps (CDS), those bad actors from the 2008 financial crisis, are back. In this intrepid dispatch, Bloomberg Businessweek’s Claire Boston and Davide Scigliuzzo report that a few financial wizards are gaming CDS contracts. CDS play a straightforward role in letting a lender hedge against default risk, but in an unexpected twist, inventive traders are buying contracts to protect against default risk and then rewarding the borrower in question for defaulting. Market watchers and investors will find this an eye-opening read.

Take-Aways

  • Credit default swaps (CDS) typically act like insurance policies for lenders.
  • These derivatives let creditors protect themselves from a borrower’s default – but savvy traders have learned to game them.
  • In one instance, a lender offered a company a great deal on a loan, but only if the firm agreed to default on an earlier borrowing.

About the Authors

Claire Boston covers credit markets for Bloomberg, where Davide Scigliuzzo is a corporate finance reporter.

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