But this matters in the context of parent comment because different things happen to money that you deposit in a bank compared money you have invested in, say, a mutual fund/ETF (which most of Blackrocks funds are) after they reinvest (even if both invest in the same loan!).
The mutual fund would use the cash to buy stocks or loans and you would be entitled to a share of that profit or loss (both upside and downside), but the mutual fund manager would typically only be paid an annual fee (1).
Money deposited in a bank gives you no upside, and, as you say, a tiny downside risk. (even before deposit insurance) Those taking the downside risk (as well as the upside) is mainly bank equity investors.
(1) As another commenter correctly pointed out there are also other sort of funds that look a bit more like banks for various reasons, but that also doesn't necessarily mean the fund manager is the one taking the upside/downside risk.
Agree on all points except the comparison with banks. The banks do technically own the money you put in it - and what you get in return is an IOU. So a bank is a very different sort of thing.
Some participants speculate, others hedge an actual risk, yet others “reinsure” the risk (in insurance terms) to earn a premium - there are all kinds.
And yes it would be quite rare for a CDS not to be traded under a collateral agreement - in fact most these days are cleared (and as the case may be, netted) with a central counterparty to minimize a web of counterparty risk that might otherwise be problematic.
FYI 'One Poultry' is indeed an address to a building, 'Poultry' is the road. And it's 'Blackfriars (Railway) Bridge', 'Blackfriars Road' & 'Blackfriars Station'.
They might or might not hedge a call, depending on whether they like the risk and their (usually relatively strict) risk limits allow it. Typically they are not in the business to take outright directional bets on stocks though - so yes they would delta hedge. But part of trading upteen-jillion contracts a month also means that among those trades there will be some that at least partially offsetting, meaning they might not need to delta hedge as much.
My father in law is in his eighties and served as a Swedish diplomat in Moscow in the 1960's (among other places). I know he too would love get a chance to read some of those letters.
I've been meaning to comment on this for a while, e.g. on Slashdot, but the thought of arguing this with some of those guys sends shivers down my spine. I've been impressed by some the discussions on HN so I'll share this with you, let's see what you think.
First of all, this is cleary fraud and those responsible should punished harshly. The whole concept of Libor is also flawed, mainly because it's not based on actual transactions and so is sensitive to manipulations like these.
Now having said that, let's make a couple of things clear:
1.
$300 trillion is not the amount of money that has been 'stolen'. If the total amount by which the rate was skewed from what it would otherwise have been was 0.01% (which probably isn't wide of the mark) then it's $30 billion per year. A lot of money still, for sure.
2.
$300 trillion doesn't mean what you thin it means. This assumes that one group of people 'loaned' another distinct group of people $300 trillion. But this isn't what happens, the number doesn't take into account that vast majority of these 'loans' are netted against each other. So at any given time the total amount 'lent' is a relatively small proportion of that, say $1 trillion (I think this is roughly true). So I think a better estimate of what was 'stolen' was about $100 million per year, within an order of magnitude.
3.
It's not clear who stole this from whom. There are two main types of manipulation that have been reported:
a) Individual traders or desks manipulated submissions for personal gain. It's not clear that this actually skewed the rates in any particular direction over time, they might have increased one week and decreased the next (and so traders were perhaps paid higher bonuses for one year). In this case one trading desk or trader 'stole' from another trader or trading desk, perhaps even within the same firm.
b) During the recent crisis, the industry as a whole submitted Libor rates that were lower than the otherwise should have been, because they didn't want to look weak (and we know what happened to those who looked weak). This would have benefitted borrowers at the expense of lenders.
The mutual fund would use the cash to buy stocks or loans and you would be entitled to a share of that profit or loss (both upside and downside), but the mutual fund manager would typically only be paid an annual fee (1).
Money deposited in a bank gives you no upside, and, as you say, a tiny downside risk. (even before deposit insurance) Those taking the downside risk (as well as the upside) is mainly bank equity investors.
(1) As another commenter correctly pointed out there are also other sort of funds that look a bit more like banks for various reasons, but that also doesn't necessarily mean the fund manager is the one taking the upside/downside risk.