For example, one very large hedge fund manager was said to be betting positions that the Japanese stock market was going down, but he worried that the one thing that would prompt that market to rise would be a drop in interest rates.
The insurance giant wrote trillions of dollars worth of these policies during the real estate boom without setting aside sufficient cash to cover losing bets, positioning itself for potential catastrophic losses.
In the Chicago futures markets, one of the principal arenas where traders can take positions against the currency, positions betting on a depreciation of the dollar totaled $32.6 billion in the latest week, close to a record, according to the investment firm Nomura.
Some hedge funds have taken up a short position, betting on further declines.
Herbalife has been in the spotlight since the hedge fund manager William A. Ackman called the company a pyramid scheme and took a $1 billion investment position betting that the stock price of the company would collapse.
Regulators have accused Goldman of encouraging investors to punt on a shaky package of home loans named Abacus without mentioning that the contents were hand-picked by a hedge fund, Paulson & Co, which had a "short" position betting on default.
The SEC contends that Tourre failed to inform participants about the extent of involvement of a hedge fund, Paulson & Co, that had a short position betting on Abacus's failure.
The SEC accused Goldman of misleading the buyers of Abacus because it did not reveal that US hedge fund, Paulson & Co, had been allowed to design it, and had then taken a short position – betting that Abacus's value would fall.
A 22-page lawsuit filed by the US securities and exchange commission (SEC) charged Goldman Sachs with working with a controversial US hedge fund, Paulson & Co, to structure and sell a complex package of mortgages to clients while Paulson took a "short" position betting that the very same mortgages would fail.
The securities and exchange commission has charged Goldman with teaming up with a hedge fund, Paulson & Co, to sell clients a collateralised debt obligation (CDO) that was deliberately structured to fail, netting Paulson huge profits from a "short" position betting on a drop in its value.
