Today you don't need real money to extort billions from large institutions; you just need CDSs in the form of "synthetic euro shorts," thanks to Michael Milken, Phil and Wendy Gramm, the Commodities Futures Trading Act and the Commodity Futures Modernization Act of 2000. (Senator Phil Gramm threw his weight behind the Commodity Futures Modernization Act of 2000, which, among other things, paved the way for a boom in those nasty credit default swaps that are coming back to haunt us all.)
The New York Times reported recently that some of these same banks were also now making side bets that Greece defaults on loans it owes U.S. banks and hedge funds. By betting in favor of default, the U.S. banks and hedge funds win whether Greece pays off its loans or not.
Senator Chris Dodd expressed his belief that there should be limits on the use of these types of bets, so as to prevent firms from creating intentional runs against governments. "The rising price of these contracts contribute to an atmosphere of crisis, thereby making it even more difficult for the Greek government to borrow," Dodd said.
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