Discredit derivatives: Difference between revisions

}}A class of [[derivatives]] invented by pioneering [[derivatives]] guru and amateur crime novelist {{author|Hunter Barkley}} to allow [[alternative investment funds]], who had in prior years, lazily committed to [[environmental, social, and corporate governance]] standards in their portfolios as a cheap way of wowing [[virtue-signalling]] [[Ultimate client|investors]], not realising that anyone would ''really'' object to massively profitable leveraged investments in firearms, narcotics and [[financial weapons of mass destruction]], much less that the dear old European Commission would then get in on the act and hold [[hedge fund]]s to account for false advertising if they did.

Barkley’s idea was simple: if it was okay to extract the crappy credit profile from a [[CDO squared|portfolio]] of [[mortgage|mortgages]] off and lay ''that'' off on someone with sufficiently deep market expertise and advanced risk management techniques to bear it,<ref>Yes, I know what you are thinking: a sleepy Landesbanken from Lower Saxony would be ''exactly'' such a person, right?</ref> why not do the same thing with the unwanted igmony that comes with profiting from outrageous investments?  

Barkley began to market instruments — at first, simple [[put option]]s — laying off the shame on those who could most easily bear it; namely — and this was Barkley’s real genius — ''the very badly-run, environment-wrecking corporates that were polluting these poor hedge fund portfolio in the first place''.  The [[hedge fund]] would write an [[at-the-money]] [[stigma put]] to, for example, the Golden Crown Palm Oil Company of Sudan Pty Ltd (after all, really, what did they care?), thus getting rid of fund’s disgrace for investing in that very company.

Objections came soon enough that this was obviously circular, but Barkley swiftly pointed out that, well, so too was [[debt value adjustment]] hedging, and everyone seemed cool with ''that'' for a good few yeards, didn’t they? Indeed, it kept a phalanx of [[financial institution]]s out of [[technical insolvency]] — and their [[DVA]] traders handsomely [[Compensation|remunerated]] — for a good three or four years after the worst excesses of the [[Global financial crisis|credit crunch]]. Slowly the product began to catch fire. “Soon it was blazing like the Amazon jungle!” Barkley fondly remembers, when asked about it at his mansion in Puget Sound today.

Eventually, though, people started to bridle — I mean, could the Golden Crown Palm Oil Company of Sudan Pty Ltd really take its ''own'' discredit back, and thereby exonerate the denizens of Mayfair of their [[ESG]] obligations? — Barkley refined the offering by combining it with another of his innovations: cross-political currency “[[turpitude swap]]s” where, for example, a natural wilderness gas fracking conglomerate could swap ''its'' embarrassment at precipitating a series of minor earthquakes on the local Inuit people with pornographic film distributor's regret for generating artificial losses to gain tax relief for its celebrity investors. Now Hackthorn Capital Advisors Master Fund III LLP<ref>I had seven goes on the [https://www.hedgefundnamegenerator.com/ hedge fund name generator]  before I came up with a fictional hedge fund name that wasn’t actually a real hedge fund name, by the way. Honestly, hedgies: what about some imagination?</ref> could lay off its ''porno-tax discredit to Golden Crown — a palm oil producer, so not implicated in onanistic or fiscal wrongdoing — who in turn swapped it out with Antwerp Fruity Motion Pictures B.V. in return for its own environmental embarrastment risk, which Antwerp had aquired when selling a put from another hedge fund in the same pickle as Hackthorne Advisors.  

Thus creating a so-called “Discredit Default Swaps” were born.