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This page contains all of the posts and discussion on MemeStreams referencing the following web page: The game changer. You can find discussions on MemeStreams as you surf the web, even if you aren't a MemeStreams member, using the Threads Bookmarklet.

The game changer
by possibly noteworthy at 7:02 am EST, Feb 3, 2009

Soros on short-selling:

Lehman, AIG and other financial institutions were destroyed by bear raids in which the shorting of stocks and buying of CDS amplified and reinforced each other. Unlimited shorting was made possible by the 2007 abolition of the uptick rule (which hindered bear raids by allowing short-selling only when prices were rising). The unlimited selling of bonds was facilitated by the CDS market. Together, the two made a lethal combination.

That is what AIG, one of the most successful insurance companies in the world, failed to understand. Its business was selling insurance and, when it saw a seriously mispriced risk, it went to town insuring it, in the belief that diversifying risk reduces it. It expected to make a fortune in the long run but it was destroyed in short order.

My argument raises some interesting questions.


 
 
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