http://www.bloomberg.com/apps/news?pid=20601109&sid=ac9AV.yzTCNw&refer=home

Dec. 10 (Bloomberg) -- Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt.

In the three months since the New York-based securities firm recommended “shorting municipal credit,” the value of the Markit MCDX index of the derivatives’ price more than tripled, to as high as 278.33 basis points from 87.75. A basis point on a credit-default swap protecting $10 million of debt for five years is equivalent to $1,000 annually.

Bets against public debt, once unheard of on bonds considered safe enough for retirees, have soared as the National Conference of State Legislatures projects recession-fueled budget crises will cause $97 billion of shortfalls nationwide over the next 18 to 24 months.

Great. Give them billions and they use it to bet against us.

Can we get a translation for those of us who failed Econ? :rolleyes:

They bought the Bonds at less than what they are worth in an effort to make money on them when they go back up.... Or at least that is the way I see it.

Shorting is when you borrow the value of the underlying property in the hopes that it will go down. It's intended to be similar to insurance, but is pretty damn slimy in this case.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ac9AV.yzTCNw&refer=home



Great. Give them billions and they use it to bet against us.


LOL...and this shocks you?

Can we get a translation for those of us who failed Econ? goldman sachs helped put the bonds onto the market (that is called "underwriting" the bonds). So they took money from the states to "underwrite" the bonds. Now they're saying the bonds they sold are NFG, so you have to buy credit default swaps (http://en.wikipedia.org/wiki/Credit_default_swap) (preferably from goldman sachs) to hedge the chance that these very same bonds are going to go tits up.

A credit default swap (CDS) is sort of like an insurance policy that only pays if the bonds default, or if the issuer files for bankruptcy (and the CDS is paid out immediately). Bear Stearns, Lehman and AIG got into trouble selling credit default swaps that they couldn't cover. You only buy a CDS if you have reason to believe that the bond has a risk of default. No state has ever filed bankruptcy, and goldman sachs is now saying to the public that those 11 states are in danger of bankruptcy.

In short, goldman sachs took money from those states to issue bonds, then kicked those same states in the 'nads.