Because you asked: Here's who profits if the debt ceiling crashes

[cali]

If House Republicans don't agree to raise the nation's debt ceiling and a default ensues, the economic effects would be "catastrophic," in the words of Treasury Secretary Jack Lew. The nation's borrowing costs would spike, as would interest rates for average Americans, and the stock market would plummet. But not everyone will lose if a default causes an economic catastrophe. Here's who could profit from a financial calamity:

1. Short sellers: Most folks invest in stocks and bonds hoping the value of their investments will increase. But there's also money to be made by short selling—betting that the value of a stock or bond will drop. Short selling is an investment strategy that's typically employed by sophisticated investors and financial firms, but technically anyone can do it. Investors who bet that the value of US Treasury securities will dip would likely profit. Because a default could cause the US stock market to crash, shorting almost any US stock could make you money. In fact, you can even invest in specific mutual funds that specialize in short selling. "It's a very powerful and disillusioning feeling to know that smart rich people can make money even when America goes over Niagara Falls in a barrel," says Jeff Connaughton, a former investment banker and White House lawyer during the Clinton administration.

<snip>

2. Investors in gold and silver: Gold and silver typically rise in value when when the stock market is volatile, because they hold their value better than paper money or other assets. The price of both metals rose this week as default fears heightened.

<snip>

4. Currency traders: Traders who bet that the US dollar will decrease in value relative to foreign currencies stand to profit off of a US government default.

<snip>

http://www.motherjones.com/mojo/2013/10/who-would-benefit-government-default

It's worth noting that far, far, far more people including the wealthy, lose- big time.

[KurtNYC]

1. Short sellers and those shorting the USD will be hammered if the deal comes in today

Has one really "profited" in gold if it is really the value of the dollar falling which raises the price ?

About the only profit I can see is big lenders would get a much higher rate of return for the next 2 years or more if Cruz control leads to a default.

[Puzzledtraveller]

2. There are no accidents.

I'm past believing we are playing "good guy" verses "bad guy" anymore.

[cali]

4. If what you're saying is that those who would benefit from a debt ceiling

crash have enough power to influence the House rethugs, I don't buy it. Those who stand to lose a lot have far more power and money.

[Fantastic Anarchist]

3. That Kramer fucker is probably drooling.

He did the same thing at the start of the recession.

[pangaia]

14. He's just the ET of the 'media stock market.'

[Oilwellian]

26. And I preserved that fact for eternity

[Fantastic Anarchist]

29. How the hell does he still have his show?

It's absolutely sickening.

[Oilwellian]

33. Jim received an SEC subpoena

He wrote “Bull sh_t” on it and held that up to the camera and told the SEC to go to hell.

The SEC saw his show and decided that his response was a fair and reasoned rebuttal and that they would no longer require him to answer the subpoena.



How much clout do you have to have to tell the SEC to suck it on national TV and for them to just agree to suck it?

[Fantastic Anarchist]

34. Holy fuckballs!

I did NOT know that. We are truly ruled by money.

I'm livid.

People go to jail for stealing bread, and this prick commits grand larceny on an epic scale, that hurts millions of real people, and not only does he get off Scot-free, but gives the finger basically to us all.

[A HERETIC I AM]

36. The text in your video at the 1:00 mark describing selling short is not complete....

and as a result, misleading.

Selling short is not simply to "borrow stock with the intent of paying it back at a later time".

You have to actually SELL in order for the transaction to realize a profit. The text that follows in your video confirms the misunderstanding by saying;

"Shortsellers profit when the value of their borrowed stock goes down and they pay it back at the lower price".

If you simply borrow stock and then return it, you have no profit at all.

In fact, one doesn't even have to actually have tangible stock to borrow before making the sale (called a "Naked Short&quot so long as the duration is not extensive, as in a few hours or a day.

A better and more accurate way of putting it would be "Shortsellers profit when they sell a stock they do not own and subsequent to the sale, the market price for that stock falls. When this occurs, it allows the seller to buy the stock for less than he sold it for and pocket the difference."

[dtom67]

5. don't forget the tea party....

USA defaults, credit rating takes a hit. Higher interest rate means you need to increase borrowing just to maintain current spending levels OR you can cut spending ( just like Tea bags wanted ).

Guess where the cuts will be demanded .....

[rurallib]

6. I don't think I will ever understand short selling

but I do remember that Eric Cantor was doing some of it last time the Repubs did this.
Or something similar - he was betting on the fail.

[ret5hd]

13. Short selling made simple:

Let's say your neighbor has stock in ABC Inc and you think ABC Inc is gonna fall hard and soon. You ask your neighbor "Hey, would you loan me your stock in ABC Inc? I'll give it back, promise. Being the good neighbor he is, he says sure!

So you take the stock you borrowed and sell it.

Now, if you were right and the next week the stock plummets, you buy it back at the reduced price, return it to your neighbor and pocket the difference.

BUT, if you were wrong and the stock rises you have to make a decision: wait longer to see if it falls sometime in the future or buy it back at the higher price and take an immediate loss. If you wait it might rise even more...theoretically your losses are unlimited because the stock could keep rising forever.

[rurallib]

15. thank you

how do you "borrow" stock? I think that is a concept I do not understand.

[ret5hd]

18. I've never done it so someone may correct me if i am wrong, but...

the way i understand it is you contact your broker and tell him you want to short ABC Inc and he looks at his clients portfolios to see which of his clients have some and then HE actually "borrows" them and then HE loans them to YOU.

I'm sure that behind the scenes it is more complicated than that, but that's the way I understand things.

[rurallib]

20. ah - the light comes on - thanks so much

wow - seems just short of illegal - some folks could sure get caught shall we say 'unprepared?'

[jeff47]

24. Important detail you're missing

Your explanation makes it sound like the broker just borrows the stock without asking. This isn't the case.

The other investors providing the stock have to agree to the loan too. After all, if the short seller is financially destroyed they lose the loaned stock. Typically they get something out of the loan, such as a small fee.

[Jesus Malverde]

35. One problem is Naked short selling.

Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "failure to deliver". The transaction generally remains open until the shares are acquired by the seller, or the seller's broker settles the trade.

Short selling is used to anticipate a price fall, but exposes the seller to the risk of a price rise.

In 2008, the SEC banned what it called "abusive naked short selling" in the United States, as well as some other jurisdictions, as a method of driving down share prices. Failing to deliver shares is legal under certain circumstances, and naked short selling is not per se illegal. In the United States, naked short selling is covered by various SEC regulations which prohibit the practice

http://en.wikipedia.org/wiki/Naked_short_selling

[A HERETIC I AM]

37. The pool of clients is not limited to the individual brokers clients only.

The stipulation of whether or not a clients stock positions are available for borrowing to be used for shorting is spelled out in the account agreement. Typically, a regular, run of the mill investment account will not have this provision. An IRA most certainly will not. Where it typically comes into play is with managed accounts and margin accounts.

In other words, you have to give permission for your shares of ABC to be used in such a way.

[MsLeopard]

17. Thank you for the understandabel explanation

I've heard it described before but never understood it. Now I do! Thanks!

[Johnny Ready]

7. This is exactly why I expect the Republicans to cut a deal

their supporters stand to lose as much as anyone else if not more, which would cost the Republicans campaign dollars and votes.

Excellent post.

[Jerry442]

8. Short sellers and gold bugs might be profiting from the threat of default...

...but the consequences of actual default are so unpredictable that it would be hard to imagine anyone rational being confident of their ability to game it.

When a rampaging gang of thugs kicks over the chessboard, no player wins.

[Jackpine Radical]

22. "Anyone rational."

Exactly.

Now think Tea Party.

[Laelth]

9. Well done, cali. Thank you. k&r n/t

-Laelth

[cali]

10. you are most welcome, Laelth

[mountain grammy]

11. yeah, for sure, but the only thing the one issue teabaggers can understand is

"holy shit we have a black president and he was elected twice. Time for Armageddon!"

[ebbie15644]

12. I'd love to know what republicans have invested in right now

[davidthegnome]

16. Didn't you hear Castellanos?

Bunny sex.

[bonniebgood]

21. One thing came to mind yesterday repubs don't know the difference

between an election and an erection. Viagra drugs must be banned.

[tsuki]

19. And Eric Cantor. nt

[A Simple Game]

23. No mention of people that would benefit from higher interest rates?

I would think that would be the most important one.

Who benefits? People that can afford to buy Treasury, and other, Bonds after the interest rates go up.

Gee, I wonder who that could be? Who would want to crash the US economy and then profit from the US having to pay higher interest rates on its Treasury Bonds? Who can afford to buy the politicians that could do this for them? Probably welfare bums.

[jeff47]

25. Um....higher interest rates don't make the treasuries more expensive for the buyer.

The cost to the buyer is the same. The Treasury sells $10k worth of bonds for $10k no matter the interest rate.

[A Simple Game]

27. Um...Yeah, your right. And after they buy those bonds,

they receive a higher return on their loan to the government they forced to pay higher interest rates.

They cause the problem and then benefit from it.

[jeff47]

28. Then why were you claiming that only certain people could afford the bonds

after interest rates went up?

[A Simple Game]

30. I don't remember making that claim, if it was implied, I didn't mean it.

My claim is that people with money can benefit from higher interest rates

I may have made this confusing, I am lumping bonds, T-bills and notes all in one, but that doesn't really matter.

But I'm not talking about buying a 100 dollar savings bond for your grandchild, I'm talking about millions of dollars worth of bonds. Yes if you have 401 money in bonds it will marginally help you too.

It comes down to this, the ones that can afford to lend money gain, the ones that have to borrow money lose.

Who can most afford to lend money?

[A HERETIC I AM]

32. Not true.

higher interest rates don't make the treasuries more expensive for the buyer. The cost to the buyer is the same.

In the secondary market, if rates rise, bond prices fall. So higher interest rates make the bonds CHEAPER for the buyer.

The Treasury sells $10k worth of bonds for $10k no matter the interest rate.

Also not true. The Treasury sells bonds at auctions held regularly by the New York branch of the Federal Reserve Bank.


You can find the results of any auction of any type of security at www.treasurydirect.com

For instance, here are the results of the last auction of 10 year notes;
http://www.treasurydirect.gov/instit/annceresult/press/preanre/2013/R_20131009_2.pdf


They sold for $986.45 a piece.

By comparison, here are the results of an auction of 30 year bonds from last April.
http://www.treasurydirect.gov/instit/annceresult/press/preanre/2013/R_20130411_1.pdf


Those sold for $1024.88 a piece

A 30 year bond bought on the secondary market today would cost a little over $970. (Source)

[joeglow3]

31. Supply and demand dictates that

I doubt it would go up too much. If it did, I would load up, as would everyone elses, thereby keeping the interest low. Long term is a different question, but I don't think there would be much money to be made long term.