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Sunday, Nov 8, 2009
So where is the hedging going in hedge funds? In just about every article I read about hedge funds, there is a lot of borrowing going on. No one seems to talk much about the purchase of one investment and offsetting the risk of the first investment with another investment that behaves differently. Secret Hedge Fund Partners may raise $1 billion from the Podunk County Public Employee Pension Fund as well as other pension funds, and then use this $1 billion as a base to borrow another $4 billion from First Leverage National Bank, which is leading a syndicate to parcel out participations in the loan to the Slick City University Pension Fund, the Daddy Warbucks Family Trust and other supposedly knowledgeable investors. So what is Secret Hedge Fund Partners investing its money in? I don't think anyone knows up front. It sounds like the old blind pools of the 1920's. And you, as a resident of Podunk County, will likely never know.
What if the whole business goes really bad? If you are a Podunk County resident, maybe your property taxes go up or your library service gets cut as the county looks for solutions to its investment losses. If you a student at Slick City University, maybe your tuition goes up even more, as the university tries to offset its investment losses. If you are a beneficiary of the Daddy Warbucks Family Trust, maybe you have to take Junior out of private school and put him into a public school. And if First Leverage National Bank is not able to sell all of its loan participations, maybe it has to cut its dividend and its own share price goes down. If you happen to own 100 shares of First Leverage in your IRA account, First Leverage's loss is all of a sudden your loss too.
Now that the proverbial horse is out of the barn, maybe the financial regulators will be able to come up with a way to reign in this cowboy capitalism, without doing a lot of damage to the economy, if WE the people are lucky. If we are not so lucky, maybe we are bound to repeat the experience of the 1930's. Unfortunately, this time around the lowly dime won't buy you very much.
All of these problems may have started with a few subprime loans going bad. But it is clear to me, that the problem is much greater than that.
If the Almighty did not look after his Chosen People during World War II, when six million went to their deaths, chances are, He will not look after your IRA either.
I totally agree with the previous Anonymous' reasoning.
This tumoil in the financial industry has a potential to spill over to all the places. When dot com era bust, I feel most of the victims were small investors. This time around, the losers are big financial institutions--the banks, the hedging funds, the mortgage lenders, etc. When they lose or go down, the consequences are much larger and the ripple effect will be felt by more people.
Zzigurrat opined:
Stay out of the financial McDonalds and head over to Whole Foods.
Yeah, well - I have. All moola pulled out of Wall-street based gambling entities - and put into fixed income (money market accounts, CDs)
Even the illustrious "Gordon Gekko" admitted that stock investment is like "throwing darts at a wall". Those who don't recognize that basic truth have no business in the debate.
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The accountability imposed by another country for the CIA's kidnapping and torture reveals much about our own.
Fox News' morning show plays to type, talking about whether Muslims in the Army should face "special debriefings"
The survivor and author is upset about comparisons some on the right are making to genocide
Once seen as a lunatic fringe, reactionary anti-women groups are courting respectability
Salon headlines in your mailbox
