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Finance

Why Hollywood May Start Complaining About Hedge Funds

Don't be surprised if someday soon you hear an actor blame his latest box-office disaster on some secretive Greenwich hedge fund that shorted his movie.

Two companies are creating futures markets where investors will be able to bet on movies' U.S. box office performance. Stories in this morning's L.A. Times, FT and New York Times explain the details.

The markets will allow people in the movie business to hedge against the risk of big-budget flops. But they'll also let speculators who have no stake in the movies bet for or against their performance. And letting people bet against assets — a stock, a pool of mortgages, a country's sovereign debt — often doesn't sit well with the people who are being bet against.

Credit-default swaps, for example, are a like an insurance policy that pays off when a borrower defaults. The price of CDS insuring against a default by Greece shot up this year, as the country's debt problems became clear. Greek Prime Minister George Papandreou isn't happy about that.

"We wouldn't want Greece to be bet against or people with quite a bit of power in the market to be wanting to see Greece's failure," he said yesterday, according to Bloomberg News.

Buzz may be big in the sovereign-debt world. But it's huge in Hollywood. The cries of a producer whose next picture is getting pounded by the futures markets could make Papandreou's complaint sound tame by comparison.

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