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Mysterious Investor, Probably George Soros, Made $ 1 Billion Bet At 10:1 Odds On US Losing AAA Rating

PTI 09 Aug 2011, 12:45:18 IST
PTI

New York, Aug 9: A mystery investor or hedge fund reportedly made a bet of almost $1billion at odds of 10/1 last month that the U.S. would lose its AAA credit rating, reported ETF Daily News.

Now questions are being asked of whether the trader had inside information before placing the $850million bet in the futures market, or if the bet happened at all.

There were mounting rumours that investor George Soros, 80, famously known as ‘the man who broke the Bank of England', could be involved.



He made more than $1billion on currency speculation when the British pound left the Exchange Rate Mechanism on Black Wednesday in 1992.

But a source with knowledge of the firm said Soros was not involved in the rumoured trade and questioned whether in fact there had been such a trade at all.

The latest bet was made on July 21 on trades of 5,370 ten-year Treasury futures and 3,100 Treasury bond futures, reported ETF Daily News.

Now the investor's gamble seems to have paid off after Standard and Poor's issued a credit rating downgrade from AAA to AA+ last Friday.

Whoever it is stands to earn a 1,000 per cent return on their money, with the expectation that interest rates will be going up after the downgrade.

The link has been made to Soros in part because he has been tied to President Obama's administration since 2008, reported The Examiner.

He also recently stopped managing money for outside investors, meaning he is under less scrutiny from the Securities and Exchange Commision.

But the mystery bet could easily have been made by another trader with similar resources, despite Mr Soros's links with the Obama administration.

The bet also raises questions of whether President Obama and Treasury Secretary Timothy Geithner knew that a downgrade was on the cards.

Mr Geithner said in April there was ‘no risk' of a downgrade - but the government now appears annoyed, not surprised, by last week's decision.

He has since slammed S&P for showing ‘terrible judgment' in their decision and a ‘stunning lack of knowledge' of U.S. fiscal budget maths.PTI adds: The unprecedented downgrade of the US' creditworthiness by ratings agency Standard and Poor's may face a probe by a Senate committee.
 
The US administration has already taken up cudgels against S&P for unleashing mayhem on the world's largest economy by its downgrade action.

Stung by the development, the US Senate's Banking Committee has begun collecting information about the downgrade action informally, but is yet announce an official probe, ABC News reported.

The report quoted an unnamed aide of the committee as saying that it was looking into the issue and gathering more information.

S&P on Friday announced a downgrade of its long-term sovereign rating for the US from the top-notch ‘AAA' level to ‘AA+' in the first-ever lowering of America's rating.

The downgrade has added to the woes of the US economy, which is already battling fears of slipping into another recession amid mounting debt worries.

The development has triggered mayhem in already weak stock markets in the US and abroad and stocks have dropped to their lowest levels in about two years.

President Barack Obama yesterday strongly defended the US credit profile and said America will always be an AAA nation, as its economic problems were “imminently solvable”.

Speaking for the first time since the downgrade, Obama said he would present his own proposals for overcoming the debt woes in the “coming weeks” and asked the Republicans to accept tax hikes on the most affluent Americans.

“No matter what some agency may say, we have always been and always will be a triple A country,” Obama said, arguing that global investors still saw the US economy as one of the safest investment destinations in the world. PTI