The silly Greek CDS investigations

By Felix Salmon
March 4, 2010
US Justice Department and the European Commission both announce investigations into the dastardly ways of hedge funds making bets against the euro, less than a week after the meme broke, you can be sure that you're looking at pure politics and zero substance. The closest thing to a smoking gun here is a dinner:

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When the US Justice Department and the European Commission both announce investigations into the dastardly ways of hedge funds making bets against the euro, less than a week after the meme broke, you can be sure that you’re looking at pure politics and zero substance. The closest thing to a smoking gun here is a dinner:

The U.S. Department of Justice is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests sent to managers who attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8.

Now in theory, it’s entirely possible that a bunch of hedge fund managers talked about the euro on February 8 and decided that they were going to conspire to short both the euro and Greek debt, in the theory that a panic in Greece would drive up the value of their shorts there, and also drive down the value of the euro.

Except if that actually happened, they were spectacularly unsuccessful. Remember this chart?

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To a first approximation, February 8 was pretty much the point at which Greek spreads were at their all-time high, and the smart money was going long Greek debt, not short it. As for the euro, it basically hasn’t moved since that date: it closed on Feb 8 at 1.3643, and it closed today at 1.3695.

These investigations will cost US and EU taxpayers a large amount of money, and will probably generate a multi-million-dollar windfall for the hedge funds’ lawyers. And they will achieve absolutely nothing in terms of results. But hey, at least politicians look as though they’re being tough on financiers. That’s got to make it all worthwhile.

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