Hedge Funds

Kyle Bass: Hard defaults are imminent

by Josh Friedlander

"The very foundation of the collective financial education will be proven to be flawed," Bass writes in his latest investor letter.

Kyle Bass' latest investor letter once again addresses the unresolved global sovereign debt crisis and delves into the psychological blinders that permit market participants to pretend that quick fixes and mystical solutions can save investors from the inevitability of hard defaults. 
Whether it is Kahneman’s “availability heuristic” (wherein participants asses the probability of an event based on whether relevant examples are cognitively “available”), the Pavlovian pro-cyclicality of thought, or the extraordinary delusions of groupthink, investors in today’s sovereign debt markets can't seem to envision the consequences of a default. The psychology of the situation is crucial to understanding why