Sunday, Feb 18, 2007
Credit Default Meltdown Imminent
Yahoo Business News: Will Sub-Prime Loan Defaults Create Another Amaranth?
Amaranth was a USD8billion hedge fund which spectaculalry collapsed a few months ago after a seemingly unstoppable 6 year run of creating double digit returns for its investors.
It seems that Amaranth top management had not correctly understood risk and what would happen if its leveraged bets on Natural Gas went the wrong way. Ironically, a hedge fund is supposed to have all bases covered. Amaranth did not. They were not too big to fail.
Similarly, a large retail bank will be taken out. There is not the understanding of Credit Default Swaps needed to prevent this occurrence.
(A Credit Default Swap is a way for a lender to insure itself against default by a borrower)
Posted by lvmreader @ 02:54 PM (143 views) Add Comment
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