Short seller Jim Chanos says the Justice Department's idea that hedge funds could take down a government through short-selling is just plain ludicrous.
Not only are hedge funds not colluding, they simply don’t have enough power to force Greece to default or to break up the European Union even if they wanted to.
“Hedge funds are being demonized once again for the failures of governments and regulators everywhere,” Chanos told Bloomberg. “We’ve seen this in subprime, in the banking crisis and we’re now seeing it happen in the currency and sovereign debt crisis.”
“Hedge funds are being attacked as causation,” Chanos says. “Hedge funds are really the symptoms and not the cause of this problem.”
Furthermore, Chanos observed, that people could be examined or investigated for talking about ideas at a dinner to which they were invited to share ideas is “just patently absurd.”
Chanos points out that while trading on, or inducing others to trade on information known to be false is clearly a crime, applying that standard to the free exchange of ideas “doesn’t even come close.”
Moreover, if the hedge fund managers currently being threatened by the Justice Department had been discussing going long the dollar as opposed to going short the euro, Chanos says there would not have been any investigation at all.
“Can you organize a cabal in three and a half minutes?” asks financial journalist Peter Eavis.
“That is roughly how long hedge-fund managers discussed shorting the euro for at an ‘ideas dinner’ in New York last month, according to a person who was present,” Eavis writes in The Wall Street Journal.
“After the meeting was reported, the Justice Department asked attending hedge funds to retain records of any euro-related trades.”
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