Magnetar of Destruction

Oh, you were hoping for the magnetars that deep fry our satelites?
You wish.

I'm late to most things these days, so while the rest of the world was listening to This American Life's story on the Magnetar hedge fund involved in a glorified pump-and-dump scheme - I had to read about it on CJR.

Scheme doesn't seem to cover it, considering that what TAL and Propublica are laying out.

At the critical tail end of 2006, Magnetar was behind 2 out of every 3 dollars of mezzanine CDOs - toxic mortgage-backed investments sent on suicide missions - so that Magnetar could win more than their value using Credit Default Swaps. That's over 20 billion dollars.

Here's CJR's nice summation: Magnetar was taking insurance out on [their] own house and then building it out of matchsticks.

If you haven't yet, Listen to TAL's story Inside Job, read Propublica's article.

It's a free market - and I'm sure there will be people saying the guys at Magnetar are just better at playing the game than everyone else - but here's the thing: there are all manner of clever ways to rip people off, some are downright ingenious - but we regulate markets to lighten the burden of commerce.

Clever people could change a gas pump to dispense less gas than they claim - they could water down the mixture in ways the consumer would never notice. That'd be clever. But it would be unethical and illegal.

What Magnetar was doing was unethical - but is permitted under current law. They insured their investments against loss - after ensuring their investments would lose.

Which makes me wonder if the sellers of credit default swaps can take a page from health insurance companies.

As in: I'm sorry Magnetar, but on page 348 of your application, you clearly misspelled your billing address. I'm afraid that constitutes a fraudulent application - we're cancelling your CDS, retroactive to the day you posted this application. Good bye.

Ba$tards.