
What Hedge Funds Consider a Win Is a Disaster for Everyone Else - pseudolus
https://www.nytimes.com/2019/05/12/opinion/windstream-bankruptcy-cds.html
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tlb
The obvious question the article doesn't address is why insurers are willing
to charge low prices for policies to hedge funds that could provoke a default.
The insurers lost a huge amount of money in the example, and you'd think
they'd try hard to avoid that.

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alejohausner
This is clearly a case of insurance fraud, but it's very hard to prove the
case legally. The hedge fund that bought the CDS on the corporate bonds went
to court, and successfully argued that the company issuing the bonds was in
default. The company went bankrupt, and the hedge fund was refunded 100% by
the insurer. How could you prove that the hedge fund acted fraudulently? They
won a case in court.

Evil, yes, but hard to prove.

But to answer your question directly, I think insurance works because most
policy holders don't cheat. If this kind of cheating becomes more frequent,
CDS premiums will definitely go up.

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jshaqaw
SOME hedge funds consider this a win. Others think it is an error in the legal
system which should be fixed as a matter of good public policy.

