3 ms·
He didn't drive the prices up (at least not by much). The fact that more and more people started defaulting on their mortgage drove up the price of insurance. T
by cstejerean 19y ago
He didn't drive the prices up (at least not by much). The fact that more and more people started defaulting on their mortgage drove up the price of insurance. That's what he was betting on (and he was right). So if he didn't make the money someone else would have (whoever was holding on to those insurance contracts).
- cperciva 19y agoYou can't buy a financial instrument without driving its price up. This applies even more if you're buying hundreds of millions of dollars worth of a financial instrument.
- vitaminj 19y agoTrue in general, but when he bought them, they were priced very low. Even after he bought millions (presumably) of the swaps, other investors thought he was an idiot and didn't follow suit, so the price of the swaps probably didn't go up much. It was only after the sub-prime fiasco got into third gear that other investors began clamouring for the swaps. By all rights, his initial foray into buying the swaps most likely had minimal effect on the price. Ultimately he felt they were incorrectly priced by the market and made a bet on them.
- far33d 19y agoYes, but this still doesn't actually hurt the people that hold mortgages (the homeowners). Whether or not my bank can handle the fact that I'm about to foreclose has nothing to do with my ability to (not) pay.
- trevelyan 19y agoSpeculation provides liquidity to the market. That generally lowers the cost of financial transactions ceteris paribus.