The U.S. Treasury’s Secret Weapon Isn’t What You Think

Scott Bessent is a savage.

I don’t mean that in a demeaning way. But if you know anything about his career, you’ll understand what I mean by it.

The 79th U.S. Treasury Secretary is almost certainly the smartest person in every room he walks into.

He thinks differently than most people. You have to if you want to get ahead in the investing world.

Back in the early 1990’s, Bessent joined Soros Fund Management leading the group’s London office. While there, he headed up macro trading in Europe, including in major currencies.

In 1992, he was instrumental in helping the fund with its famous short position against the British Pound.

The bet was that the pound was vulnerable. The British financial system couldn’t handle increasing interest rates to defend the pound in the event of a financial crisis.

Especially after Britain joined the European Exchange Rate Mechanism (ERM), a system that pegged other European currencies to the German Deutsche Mark within a fixed range.

But Britain’s economy didn’t align with Germany’s. A problem Bessent looked to exploit.

Bessent’s key insight: British homeowners had variable-rate mortgages. That meant if the Bank of England raised interest rates, it would devastate the British housing market.

So his thought was that the British couldn’t “defend the peg” as part of the ERM. It would cause too much pain.

Ultimately, Bessent’s insight helped George Soros and his Chief Investment Officer, the legendary Stanley Druckenmiller, pull the trigger. They made a calculated bet by pouring $10 billion into shorting the pound.

That trade worked to perfection. On “Black Wednesday”, September 16, 1992, the Bank of England did all it could to defend the peg. The way it did this was by raising interest rates and openly buying the British pound on the open market.

As the selloff in the pound intensified, the BOE bought about £2 billion per hour. In total, the BOE spent £27 billion trying to keep the pound afloat.

But it didn’t work. Neither did raising interest rates aggressively. First from 10% to 12%. Then when panic set in, all the way up to 15%. All within the span of about six hours.

Finally, exhausted, they gave up. The pound crashed. The U.K. had to leave the ERM.

Soros Fund Management “broke the Bank of England” and cashed out with a profit of about $1.8 billion. All because a 29-year-old financial genius was smarter than the central bankers who didn’t understand the game.

Scott Bessent’s career and some of his greatest trades are ones most in the financial world would envy. Before joining Soros Fund Management, he started as an analyst at the famed Brown Brothers Harriman.

He later joined one of the most successful short sellers of all-time, Jim Chanos at his firm Kynikos Associates. (Jim Chanos was one of the first investors to call out Enron as a house of cards, making an estimated $500 million on the trade as Enron collapsed.)

After leaving Soros for several years to run his own shop and teach at Yale, he returned to Soros as the firm’s Chief Investment Officer in 2011.

And he repeated the famous pound trade 20 years later. But this time he targeted the Japanese Yen and walked off with another hero trade making about $1.2 billion in profit in the process.

Regardless of what you think of him, the point here isn’t to gush over his career. It’s to recognize that he probably knows more about the mechanics of economics and investing than almost anyone alive. And that almost everywhere you look, it seems he’s using that killer instinct as a trader in his current role as Treasury Secretary.

Or at least, recognizing his fingerprints are on some major moves by the U.S. government today. Like the recent news about Spirit Airlines.  

If you’ve been following the saga of Spirit, you know the troubled discount airline is on its last legs. It declared bankruptcy in August 2025 where it still remains.

It had to. Especially after a Federal judge blocked JetBlue’s $3.8 billion acquisition of Spirit in 2024.

The JetBlue deal was a lifeline for a company saddled with a heavy debt load. And that hasn’t seen a profit since 2019.

The deal would have given Spirit investors a chance to exit whole. And the combined company would probably  be a much healthier discount airline overall.

Instead, Spirit filed for bankruptcy first in November 2024. It briefly emerged in March 2025. But filed again months later until things finally came to a head. 

That’s when news broke last week that the U.S. government is considering a rescue package to keep Spirit operating.

Even if it’s the worst airline in the world, without Spirit, the low-cost sector gets a lot more expensive. Something analysts argued would happen when the merger with JetBlue failed.

As part of the proposed package, the government would offer as much as $500 million in financing.

But the government wouldn’t just buy a piece of Spirit. Instead, it would get something readers of Strategic Trader are all too familiar with: warrants.

The warrants would give the government the option to purchase up to 90% of the airline.

If I had to guess, the deal wouldn’t be just to prolong Spirit’s life. I think something else is at play here. Something that has Scott Bessent’s fingerprints all over it, even though U.S. Commerce Secretary Howard Lutnick is getting all the credit.

At first, it would be a plan to “rescue” Spirit from the graveyard of history. Then it would be to work towards the original plan it had two years ago: find a willing partner to buy it outright.

If that happens, the value of those warrants would most likely skyrocket. The government would turn a $500 million financing into multiples of that. Think in the billions.

And it would all flow straight into the Treasury. Savage Scott strikes again.

Now I know this is all a pure hypothetical. But it’s not all that crazy when you take a step back and look at what Bessent’s done throughout his career.

But maybe even more important is how the government is potentially going about this deal. More specifically, it’s using warrants front and center.

Buying Spirit outright would take billions – about $7 billion to be exact – just to satisfy the company’s debt. But a small bet of $500 million – at least relative to the U.S. government – with the optionality of a warrant?

That’s a far better deal. And if it works out, it’ll be a huge win.

Now, we wouldn’t be able to buy these warrants if the deal happens. The government would own them alone.

But we don’t have to in order to make the same types of asymmetric bets that guys like Savage Scott made a career out of. There are plenty of tradable warrants out there for investors of any size to bet on.

And it doesn’t take much to turn small sums into massive gains with warrants.

So if top investors – and even the U.S. government – are using warrants to make deals, and to make small bets with the potential for huge returns, why aren’t you?

Regards,

Editor, Strategic Trader