Wednesday, March 20, 2013

Oh, here's an interesting idea:

Let's say I'm a casually amoral multinational finance corporation.  The number I've been hearing for the Cyprus bailout is something like $13e9.  That's like 10% of what Apple (which is not actually a financial corporation, but still) has in cash, on hand, so that's not an excessively large amount of money.

So I'm casually amoral, and have lots of money that could be used to fix the Cyprus debt crisis.  Why would I do that?  Well, maybe you take out a pile of put options on the Euro.  The idea being that you promise people that you'll sell them Euros at today's price sometime in the future.  When that time comes around, you buy Euros on the open market, and fulfill your options.  This is what "shorting" something is.

Now, you have a pile of put options on the Euro, so you need to do something to ensure that the Euro price tomorrow is lower than it is today.  I'm not an expert, but I'm pretty sure that stepping in "out of the goodness of your heart" to help the people of Cyprus where the European Central Bank and Eurozone partners have been unable or unwilling to do so would throw a series amount of uncertainty at the ability of the ECB to solve future crises.

Basically, you crash the Euro by suggesting to people in a dramatic and obvious way that they're unable to solve problems on their own, and use that crash to make more than your initial investment in the bailout.  Plus, you probably have some leverage to get repaid by Cyprus, although since you've decimated their currency, that's unlikely to get you much.

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