Last year, before the crisis exploded, banks and hedge funds had bought up a large amount of Greek debt cheaply, insuring it by purchasing credit default swaps (CDSs). The crisis has enabled banks to make a killing by selling what is now high-yield Greek debt and issuing further CDSs at a huge premium.
Is he actually ignorant of the way that bond prices and bond yields are the inverse of each other?
So, you buy Greek govt debt at 5% yield for 100. Next year the same bond is yielding 8%. Now, it depends upon the maturity of that bond but when you come to sell it you don\’t get 100. You get 95, or 90, or 70 for it.
So, rising yields mean you don\’t make a fortune buying debt cheap and selling dear. They mean that you *lose* a fortune buying debt dear and selling cheap.
I know that SOAS is known as a home for heterodox economists but really, there\’s a difference between heterodoxy and complete divorce from reality.