Gov bailout info could enrich some

Insider information about forthcoming business events has long been known to enrich people and get them thrown in jail. Insider information about government actions has been less covered in the press and possibly by prosecutors likely because of the halo people place on U.S. government actions. Hedge fund manager Dan Loeb proved one could make billions betting on the government bailouts of 2008. Anyone with insider knowledge of the bailouts could have done the same.

he bet that the government bailouts would work. “We bought things like Chrysler Finance Company bank debt, which doubled in two weeks leading up to the bankruptcy of Chrysler,” he told an audience at the Jewish Enrichment Center, in New York, in 2009. “We bought insurance companies like Lincoln National and Hartford that were rescued by TARP. We bought Bank of America preferred stock.” In six weeks, Third Point went from being down 7 percent to being up 7 percent. [Vanity Fair]

Four years later, Dan Loeb won again by investing in Greek sovereign (government) debt that many believed was worthless but was soon bought by the European Union. Anyone with insider knowledge of the debt purchase could have also made millions.

…Loeb’s 2012 bet that Greek sovereign debt would rise in value as a result of a bailout from the European Union. Loeb, he recalls, bought the debt at 17 cents on the dollar and sold it for 34 cents a few months later. “He made himself about $400 million or $500 million,” Scaramucci says. [Vanity Fair]

The potential for insider trading based on government bailouts is yet another reason to end them and to remove the ability to bailout by stopping central banks from creating new money.

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