{"id":522091,"date":"2010-04-09T15:41:25","date_gmt":"2010-04-09T19:41:25","guid":{"rendered":"http:\/\/washingtonindependent.com\/?p=81834"},"modified":"2010-04-09T15:41:25","modified_gmt":"2010-04-09T19:41:25","slug":"how-one-hedge-fund-made-losses-and-profited-off-of-them","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/522091","title":{"rendered":"How One Hedge Fund Made Losses and Profited Off of Them"},"content":{"rendered":"<p>Next week, Congress is back in session, and financial regulation will occupy much of the legislative calendar in and mental capacity of Washington for the next month or two. The proposed legislation <a href=\"http:\/\/www.rooseveltinstitute.org\/sites\/all\/files\/KonczalFinRegMar25.pdf\">imposes<\/a> stronger capital requirements and creates a Consumer Financial Protection Agency, among other provisions. But it cannot stop the innovation of newer, more interconnected and frankly weirder financial products &#8212; and a brilliant new <a href=\"http:\/\/www.rooseveltinstitute.org\/sites\/all\/files\/KonczalFinRegMar25.pdf\">investigative report<\/a> by Jesse Eisinger and Jake Bernstein at ProPublica shows just how new, interconnected and weird some of those products were.<\/p>\n<p>The report shows how one hedge fund, Magnetar, originated mortgage-based investment instruments, backed them with the riskiest possible assets and then made massive bets against its own products. Every part of it was perfectly legal, and very little of it came under regulatory oversight.<span id=\"more-81834\"><\/span><\/p>\n<blockquote>\n<p>According to bankers and others involved, the Magnetar Trade worked this  way: The hedge fund bought the riskiest portion of a kind of securities  known as collateralized debt obligations &#8212; CDOs. If housing prices  kept rising, this would provide a solid return for many years. But  that&#8217;s not what hedge funds are after. They want outsized gains, the  sooner the better, and Magnetar set itself up for a huge win: It placed  bets that portions of its own deals would fail.<\/p>\n<p>Along the way, it did something to enhance the chances of that  happening, according to several people with direct knowledge of the  deals. They say Magnetar pressed to include riskier assets in their CDOs  that would make the investments more vulnerable to failure. The hedge  fund acknowledges it bet against its own deals but says the majority of  its short positions, as they are known on Wall Street, involved similar  CDOs that it did not own. Magnetar says it never selected the assets  that went into its CDOs.<\/p>\n<\/blockquote>\n<p>The whole thing is worth a read.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Next week, Congress is back in session, and financial regulation will occupy much of the legislative calendar in and mental capacity of Washington for the next month or two. The proposed legislation imposes stronger capital requirements and creates a Consumer Financial Protection Agency, among other provisions. But it cannot stop the innovation of newer, more [&hellip;]<\/p>\n","protected":false},"author":6662,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-522091","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/522091","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/6662"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=522091"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/522091\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=522091"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=522091"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=522091"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}