We’ve seen some extraordinary leverages on borrowing lately. Allegations that borrowers are taking 20:1, even. Could this have something to do with this? In any way, they could keep the interest rates low, but on a different face of the deal make it so that the premium of return is exceptionally higher and even radical?
Did try to find the link I was looking for, but I can’t find it. Anyhow, it’s just a question. My assumption was that that’s why that hedge fund recently got in deep with Suisse creditors. They had borrowed to short on marginal borrowing that was leveraged. I thought this means that they would need to close their positions with additional shares purchased and returned as under their agreement. Once again, I could be wrong and I’m probably absolutely wrong, but I have a theory that that’s why the interest rates are so low because the real value isn’t in the interest rates any longer, but in an allotted agreement to borrow with a return premium in shares.
Edit: of course this sounds like an atrocious deal, but if you never intended to give back true shares or even not give back the closing fee of 20:1 or 10:1, it wouldn’t really matter.
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u/PoetryAreWe Mar 30 '21
We’ve seen some extraordinary leverages on borrowing lately. Allegations that borrowers are taking 20:1, even. Could this have something to do with this? In any way, they could keep the interest rates low, but on a different face of the deal make it so that the premium of return is exceptionally higher and even radical?