General Discussion
In reply to the discussion: Chelsea's husband is a vivid illustration of crony capitalism. In fact, [View all]beastie boy
(9,505 posts)The hedge fund was actually buying the debt of a sick man, for pennies on the dollar, because, due to the patient's present condition, his creditors didn't expect him to pay much of it back. The hedge fund was counting on the patient to get well enough so he can go back to work and repay the full amount (or close to it) to them, making a hefty profit. High risk, high reward, potential for quick turnaround.
At some point, it has become apparent that even though the patient is not going to die, his condition will not improve anytime soon for him to start repaying his debt. As far as the market goes, his debt is now worth less than what the hedge fund acquired it for because there is now greater certainty that the patient will never pay back his debt.
The hedge fund invested in the patient's debt when it was worth something, and now it is worth nothing.