Hedge Fund’s Depravity

“You can no longer assume the people investing in your debt instruments are going to be aligned to your interests,”

“What Hedge Funds Consider a Win is a Disaster for Everyone Else”, New York Times, William D. Cohan, March 12, 2019

Is there any way in which we can return the favor to the hedge funds, you know, like bankrupt them? Do unto them as they do unto you. The latest article I have read about hedge funds is depicting them as vile vultures: their current technique is to buy credit default swaps where they pay premiums for insurance on the debt they own and then push the companies into default so the hedge funds can collect the insurance money.

Sometimes those insurance money can be worth way more than the total repayment of the loan including interest so there is a perverse incentive to go for the insurance money, and to do that, the struggling company has to go into bankruptcy.

Hedge funds win and everybody else loses, including the insurance companies.

I believe the credit default swaps were part of the problems contributing to the 2008 financial collapse.

So here we go again.

Can’t we claw back the money plus more to drive the bad hedge funds into bankruptcy? And add jail time, like 20+ years, while we’re at it? Can’t insurance companies sue the hedge funds for bad faith in signing up for the credit default swap, much like suing or jailing someone for burning their own house on purpose to collect the insurance money? Isn’t that a form of fraud? Surely, we can stick it back to them.

This kind of behavior is why people do not like Wall Street or the finance sector. It’s the bad behavior from some hedge funds, private equity firms and others on Wall Street that creates a black aura over everyone in finance. Not everyone is bad (or it may be wishful thinking on my part): Tom Steyer (Democratic guy calling for impeachment), Nick Hanauer (warning the wealthy elites to change behavior or the pitch forks will be coming) or Lawrence Fink (calling for businesses to do social good rather than just be profit seeking) seem to be really sincere in trying to do what is good for society. But I think those guys are rare; I suspect most hedge fund or private equity guys are greedy, cruel, depraved and probably leans toward the criminal.

“When that trust falls away,” Mr. Thomas, at Windstream, told me, “every time you’re sitting across the table from an investor it runs through my mind: Are you working in our interests, or are you trying to screw me?”

Ibid.