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this post was submitted on 14 Aug 2024
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Thanks, but how did the pension funds hedge against interest rates in a way that they had to pay up when the interest rate went up?
I have no idea man. My knowledge extends as far as that video. After watching "The Big Short", I've learned that there are a lot of ways that finance bros play the economy in ways that we cannot comprehend.
My hypothesis is that they put the gilts up as collateral so that they could borrow money to invest. So, interest rate goes up, and the value of existing gilts goes down, because why buy a gilt with 1% interest when you can get a new one with 2% interest? Pension funds need to add more collateral to their accounts, because the gilts became less valuable.
Good movie