The hedge fund manager's patent method of making money:1) Sell...

The hedge fund manager's patent method of making money:
1) Sell bank stocks
2) Buy credit default swaps against those stocks.
3) Continue to sell stock
4) spook commentators with lehmann mark two stories
5) continue to sell stock
6) hopefully either a) trigger a default event when the bank goes bust, and get paid out on CDS or b) force the bank to raise fresh capital through a placement, thereby covering short.

Problem is, this time, there is no credit default event therefore no pay out on CDS's, and some banks (BNP eg today) already saying that they don't need to issue new stock to raise fresh capital (they state they will get to 9% capital ratio from profits by June 2012).

The hedge funds are short a rising market (equity) and long a falling market (CDS), and getting KILLED....European market is up 4% already.

And lastly, IMO, this is going to give the hedgies such a bloody nose that they will be very very shy about putting this hedge back on. In fact this might be exactly what the Euro bunnies were hoping to achieve.