With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.

As we’ve discussed regularly on the site, and longer form in ECONNED, the main mechanism that famed subprime shorts like Magnetar and John Paulson used were synthetic and heavily synthetic CDOs. That means their “assets” were mainly or entirely the credit default swaps that were these short sellers’ bets against risky tranches of subprime mortgage bonds. By packaging them into CDOs, they were able to sell BBB risk at close to AAA prices (the AAA tranches of CDOs did carry a higher yield than conventional AAA investments). The really drecky remaining tranches were flogged to clueless investors or rolled into other CDOs.

We now see tales emerging of who were the bagholders on the Argentina CDS, as in who were the “protection sellers”. Although the deal structure was different, the general pattern is the same: use a complex credit instrument to shift risk onto naive buyers. FT Alphaville yesterday described one victim, a sole investor in a credit-linked notes deal that provided a premium yield in return for taking on Argentine default risk. The result was that the investment has taken 51% losses. Today, the press seems to have identified the victim. From Bloomberg: