Hedge Funds May Sue Greece if It Tries to Force Losses

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woof755
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Hedge Funds May Sue Greece if It Tries to Force Losses

Post by woof755 » Thu Jan 19, 2012 4:48 pm

Found this article on NY Times. Shameless is all that comes to mind. What happened to risk?

http://www.nytimes.com/2012/01/19/busin ... -loss.html
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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baw703916
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by baw703916 » Thu Jan 19, 2012 4:55 pm

Since the whole issue is that Greece doesn't have any money, I'm not seeing how lawsuits could possibly be a winning strategy.
Most of my posts assume no behavioral errors.

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SSSS
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by SSSS » Thu Jan 19, 2012 11:04 pm

baw703916 wrote:Since the whole issue is that Greece doesn't have any money, I'm not seeing how lawsuits could possibly be a winning strategy.
They don't have money, but they have an entire country, so they could sue for that.

KSActuary
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by KSActuary » Thu Jan 19, 2012 11:08 pm

Hedge funds don't want the CDS to trigger.

jimkinny
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by jimkinny » Fri Jan 20, 2012 6:15 am

I listened to a Bloomberg podcast regarding this. It seems that some hedge funds own Greek bonds. They bought insurance against the possibility of a Greek default. These hedge funds will receive more money from a Greek default, than from a "voluntary" 50% haircut. Therefore, they are threatening a lawsuit if retroactively the terms of the original bonds are changed.

Jim

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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by hicabob » Fri Jan 20, 2012 8:15 am

SSSS wrote:
baw703916 wrote:Since the whole issue is that Greece doesn't have any money, I'm not seeing how lawsuits could possibly be a winning strategy.
They don't have money, but they have an entire country, so they could sue for that.

We'll take Crete to compensate for the $billion we lost.

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woof755
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by woof755 » Fri Jan 20, 2012 8:30 am

jimkinny wrote:I listened to a Bloomberg podcast regarding this. It seems that some hedge funds own Greek bonds. They bought insurance against the possibility of a Greek default. These hedge funds will receive more money from a Greek default, than from a "voluntary" 50% haircut. Therefore, they are threatening a lawsuit if retroactively the terms of the original bonds are changed.

Jim
Sweet! A new investment product: CDS against haircuts, as opposed to default. :roll:
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Kenkat
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by Kenkat » Fri Jan 20, 2012 8:34 am

Good luck suing a sovereign nation - and getting them to pay.

yessiree83
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by yessiree83 » Fri Jan 20, 2012 9:40 am

jimkinny wrote:I listened to a Bloomberg podcast regarding this. It seems that some hedge funds own Greek bonds. They bought insurance against the possibility of a Greek default. These hedge funds will receive more money from a Greek default, than from a "voluntary" 50% haircut. Therefore, they are threatening a lawsuit if retroactively the terms of the original bonds are changed.
+1

To elaborate on this point, what essentially happened here is that the hedge funds correctly calculated the probability of a 50% price drop and planned accordingly, but failed to account for the fact that the meaning of that probability would be invalidated if the event in question bifurcated to a case where, contrary to prior conception, it not only matters what the price is, but also how that price is attained. This is the inconceivable black swan...that the bond may now simultaneously be both satisfied and defaulted and, thus, this event can no longer be represented by a single real number (and so the dimension of the event space has increased, invaliding all prior probabilistic and statistical analysis).

So we have a perfect example of why probability and statistics (which includes monte carlo simulation) can never be used to plan investment returns because events which circumvent the probability framework are precisely the ones (ie the risks) which drive returns.

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mas
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by mas » Fri Jan 20, 2012 10:17 am

yessiree83 wrote:
jimkinny wrote:I listened to a Bloomberg podcast regarding this. It seems that some hedge funds own Greek bonds. They bought insurance against the possibility of a Greek default. These hedge funds will receive more money from a Greek default, than from a "voluntary" 50% haircut. Therefore, they are threatening a lawsuit if retroactively the terms of the original bonds are changed.
+1

To elaborate on this point, what essentially happened here is that the hedge funds correctly calculated the probability of a 50% price drop and planned accordingly, but failed to account for the fact that the meaning of that probability would be invalidated if the event in question bifurcated to a case where, contrary to prior conception, it not only matters what the price is, but also how that price is attained. This is the inconceivable black swan...that the bond may now simultaneously be both satisfied and defaulted and, thus, this event can no longer be represented by a single real number (and so the dimension of the event space has increased, invaliding all prior probabilistic and statistical analysis).

So we have a perfect example of why probability and statistics (which includes monte carlo simulation) can never be used to plan investment returns because events which circumvent the probability framework are precisely the ones (ie the risks) which drive returns.
Sounds like those "investors"
1) gambled
2) are about to lose their gamble
3) are about to whine and throw a temper tantrum

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SSSS
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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by SSSS » Fri Jan 20, 2012 10:42 am

hicabob wrote:
SSSS wrote:
baw703916 wrote:Since the whole issue is that Greece doesn't have any money, I'm not seeing how lawsuits could possibly be a winning strategy.
They don't have money, but they have an entire country, so they could sue for that.

We'll take Crete to compensate for the $billion we lost.
Aspiring to become king of the Cretans, eh?

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Re: Hedge Funds May Sue Greece if It Tries to Force Losses

Post by Sulvar » Fri Jan 20, 2012 11:02 am

From reading the article it sounds like the hedge funds have a pretty strong case. I don't see how Greece can "force" bond holders to take a 50% haircut, whether they want to or not.

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