Cramer: Breaking Capital Destruction
Courtesy of The Street.com
Wow! I'm amazed, Cramer has these wonderful days. I usually hit the remote button to change the channel to avoid his shouting... But, I take my hat off to the guy this time, you have to watch him on this video clip.
And, I have to admit that I still haven't developed the killer instinct of these sharks!
Let me explain. In essence, the sharks, as they've done in the past in Mexico and Thailand, smelled the weakness of the investment banks short credit default swap positions --and, that there was a huge amount of money to be made in case of a default.
A long CDS position allowed more leverage at default than ever before.
I have estimated that they made $4 trillion USD with the Lehman default (10x Lehman's debt). But, the beauty of it all, is that they only needed about $5 million to do it.
($5 million = 4% conservative good faith deposit on 3% average cost of outstanding CDS to debt of $4 trillion)
An unbelievable 833 times profit in less than 2 months, conservatively.
What can I say, live and learn.