Famously several investors placed bets that the housing market would collapse, commonly referred to as "the Big Short." ("short" is a trader's term for investing in a manner that one makes money if the stock loses value) One can help but observe there is a tremendous opportunity to make money by placing bets that payoff if the unimaginable happens, the US treasury defaults on the debt. Of course i have no evidence that investors are taking this position. But the opportunity is there.
Even 6 months ago the idea that the government would default on the US debt would be considered unfathomable. US treasuries carried the reputation as the "world's safest investment." It would cost very little money to take such a postition. One with inside information or faith in the republican leadership's willingness to force default through the debt ceiling debate stood to win big should that happen.
Certainly some investors today are placing bets that pay off with default. if one believes the politics are such that a compromise will never be reached then it is a prudent investment to make.
i came to this understanding when asking myself if the wall street and corporate support for the tea baggers in the last election has become as strategy that has blown up in their faces. that the promised wreck to the economy caused by their single-mindedness and intransigence might lead to some regret on the part of those tycoons. then i realize, of course not. Wall street has learned to make money when the market goes down, and when the market goes up. they can take investment positions that payoff at any particular outcome. the only way wall street investors don't make money is if there is not movement in the markets.
Today, the CME group constricted trades in the Treasury futures market. CME group, FKA the Chicago Mercantile Exchange, is the NYSE of futures. They report that the number of trades and the volatility of the treasury futures market makes it necessary to increase requirements on traders and reduce the number of bets being placed.
So, that's how markets work. Profiting from a default of your own government is unseemly, but not illegal. One invests in a way that pays when the outcome you predict comes to actuality. The concern here is if there is political collusion going on. that is to say, if politicians are driving towards default because they are being lead by persons who stand to profit greatly with default, then we have a congressperson willing to screw the American economy to reward very narrow interests.
again, all i can say with certainty is that the investment opportunity that pays off should there be a default exists. i can not say who's campaign donors are taking such a position. And i certainly can't say that a politician is influenced by such actors. And it would take some more research to establish that the campaign donors selected the candidate in order to achieve such an outcome.
but it is interesting to me that Eric Cantor (who's wife is a former Goldman Sachs Vice President) is leading the "ultimatum" group. He has acted in a manner to sabotage an increazse in the debt ceiling by walking out of talks and supporting the Boehner plan that can not pass the Senate. Rep. Cantor represents the Richmond suburbs and his largest donors are hedge funds (from New York).
They've found each other - the politican willing to make infamous history and hedge funds, an industry notorious for placing odd and outrageous bets on the economy. i hate to suggest collusion, or that Cantor told his large investors about plans to derail an agreement and force a default. Can't prove that. Just saying the opportunities are there.