As Hedge Funds Go Mainstream, Risk Is Magnified (casino economy exposed)

Washington Post ^ | August 11, 2005 | Ben White

[thinking4me]

As Hedge Funds Go Mainstream, Risk Is Magnified By Ben White Washington Post Staff Writer Thursday, August 11, 2005; D01 NEW YORK --

In 1990, there were about 600 hedge funds with $38 billion in assets. Today, there are about 8,000 with more than $1 trillion in assets. Estimates suggest that hedge fund trading can account for as much as half the daily volume on the NYSE......

Worst-Case Scenario

The regulators and executives say the worst-case result of the industry's blistering growth and light regulation would be a repeat of 1998, when the near-collapse of hedge fund Long-Term Capital Management LP (LTCM) threatened to topple world financial markets.

"Given the absence of transparency across the hedge fund market, we think it would be hard for anyone, including regulators, to conclude with certainty that another LTCM-like event is not possible," said Craig Abruzzo, global co-director of risk management for the prime brokerage unit at Morgan Stanley.

In 1990, there were about 600 hedge funds with $38 billion in assets, according to Hedge Fund Research Inc. Today, there are about 8,000 with more than $1 trillion in assets..... MORE

[PeterPrinciple]

There are no hedgers involved in this, it is ALL speculation.............and it is causing chaos instead of stability.

[Protagoras]

These rogue free enterprise businessmen must be reined in. They have somehow escaped 10 pages of the 6,290,063,098,111 pages of regulations required of everyone else in the investing business and MUST be controlled!

< /sarcasm>

[thinking4me]

alas, this is what happens when everything is backed by debts, when some only get richer when others must pile on debts. The entire world economy is an illusion... debt based economies = the top sucks the bottom. The savings rate is now zero % in the US. The problem is that the Top today has nothing anymore and this is why "they" came up with the new bankruptcy bill. Soon slavery at its finest will take away from you your dearest American dream.

Yes, returning to the gold standard will be costly, not because of the gold standard itself but the money printing press that is inflating everything. Truth is always painful anyway. Eventually we'll be forced to embrace US CONSTITUTIONAL MONEY AGAIN one way or another... the the day we do so, it might come from "We The People", who are fed up with all these booms/busts/recessions/depressions... YEAH, ECONOMY ALWAYS COMES BACK... AFTER THE BUST. HERE WE GO AGAIN?

THE ARCHITECT OF OUR CURRENT MONETARY SYSTEM: "Should government refrain from regulation (taxation), the worthlessness of the money becomes apparent and the fraud can no longer be concealed." -- John Maynard Keynes, "Consequences of Peace." STAY UPDATED: WORLD GREAT CRASH ALERT

If you're living in NYC and wish to volunteer for the cause of sound money, please get in touch with me.

[RushCrush]

Troll?

[Protagoras]

The sky is falling.

[lemura]

this is what happens when everything is backed by debts

Debt is merely a function of demand for goods & services; money supply is merely a function of the debt issued to supply this demand. Who's to say that a zero based savings economy isn't the next wave in the evolution of commercial activity?

The key is, has been, and will always be, inflation. Keep inflation in check, and wealth has to be created via new goods and services. Look at the construction industry: everyone is focusing on the rise in real estate prices, but seemingly ignoring the transformation of many previously blighted areas.

[thinking4me]

alas the sky will fall eventually and sooner than many may think: by 2008 the grand total debt of america will be 72 TRILLON , govt liabilities included...

Actually there is a good book on amazon: debts and delusions... Got Gold/Silver?

[Protagoras]

alas the sky will fall eventually and sooner than many may think:

Originally predicted, 1802, 1824, 1860, blah, blah, blah,,,,,,,,,,,,,,,,,,

[thinking4me]

everyone is focusing on the rise in real estate prices, but seemingly ignoring the transformation of many previously blighted areas.


yeah, exactly... the economy is booming!!!

meanwhile the country goes deeper into debt... Speeches ignore impending U.S. debt disaster No mention of fiscal gap estimated as high as $72 trillion Carolyn Lochhead, Chronicle Washington Bureau

I've got an idea: we're going to borrow as much as necessary, this will create the biggest boom ever but will be able to pay ALL OUR DEBTS... how about that???


HAHAAAAAA!!! SORRY... hope you see the flaw of your argument here.

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford

[Protagoras]

Fundamental economics escapes the vast majority.

Just yesterday, our "conservative" President made a statement right out of Keynes handbook.

[thinking4me]

if pro-founding father individuals are considered as trolls, maybe is the sky really falling now :-)

[lemura]

meanwhile the country goes deeper into debt

Again, not to belabor the point, since I'm getting the impression you are either (a) a troll; or (b) misguided, but debt is merely a function of demand for money. Money supply expands ONLY through the issuance of debt - as long as money supply tracks production, inflation is controlled.

Here's a thought experiment to disprove your thesis: if an economic collapse were to occur, who would you rather be? The creditor or debtor? That's why it's better for the US to be a debtor nation - all that paper held by foreign states is worthles if we leave the game.

[Pondman88]

Correct, and paying back debt with inflated money benefits the debtor, not the creditor. That is, debt becomes "cheaper" as money is inflated over time.

Ths sky ain't falling.

[Uncle Miltie]

Hedge funds are comparatively small. What I want to know is why is so much money chasing the non-productive asset real estate to the relative exclusion of productive stocks?

Why and how can real-estate screem ahead without being funded by the wealth built by profit making enterprises? It seems only temporary enthusiasms (read: bubble), an unusual interest rate environment (read: "loose money") or major market preference shifts (read: "nesting" or "retirement home") could account for the disconnect between productive wealth generation and housing prices.

When that dichotomy is resolved, me & my portfolio will be much happier.

[thefinancechemist]

So if I get you correctly, you are saying that it is ok to rack up huge debts and then not pay them.

Geez you sound like a lib to me. Real people pay what they owe. They don't steal money by borrowing and then inflating away their debts. Get real you sound like a commie.

[Patinator]

The number of hedge funds that exist as reported by HFRI is really about 4,000. The 8,000 number that has been continually perpetuated includes fund of funds. Fund of funds collect money from investors and then allocate those funds to hedge funds. If hedge funds did not exist, fund of funds would not exist.

It is true that the number of people starting hedge funds has skyrocketed, but that in an of itself is not a bad thing. However, 80% of hedge funds invest in equity and 80% of them employ a long-short strategy (data from HFRI). In other words, 64% of the 4,000 hedge funds are in long-short equity. Sure, they are many industries they can focus on, but if there is a shake out in the industry, I think it will be in long-short equity.

Is 4% or 5% in a different asset class by the retirement systems a bad thing? Since hedge funds are supposed to be non-correlated with other investments, this is called diversification by most people. From the Virgina Retirement Systems website, in 2002, their US equity holdings experiences a 16% loss or $2.9B. Gee, this is larger than their entire hedge fund allocation of $1.6B. Oh, their 5 year return for their equity portfolio is -.3%. One of the biggest reasons that just about all retirement systems are investing in hedge funds is because they were overexposed to equities in 2000, got their butts kicked and are now underfunded.

What is so comical about hedge fund bashing is that you will only read about it as a scapegoat for when the market hiccups. Have you ever read about how hedge funds are responsible for when the market rallies? If they are so powerful, why do they only have a negative effect?

[lemura]

Poor, very poor trollificus. I give it only a 1/10. Please refrain from playing again until you improve the quality of your posts.

[thefinancechemist]

Sadly, people like you are the reason we are on the verge of a severe economic dislocation.

You are disgusted by people who spend irresponsibly and generate huge credit card debts but fail to realize that the government is doing the same thing.

Why don't you go read up on Germany and Argentina and then tell me again how it's better to be a debtor than a creditor.

You have absolutely no clue what you talking about.

It really doesn't matter to me though, since I have made 300% on my portfolio of natural resource stocks since 2001. No matter how bad it gets I'll be laughing at people like you.

[thefinancechemist]

Sadly, people like you are the reason we are on the verge of a severe economic dislocation.

You are disgusted by people who spend irresponsibly and generate huge credit card debts but fail to realize that the government is doing the same thing.

Why don't you go read up on Germany and Argentina and then tell me again how it's better to be a debtor than a creditor.

You have absolutely no clue what you talking about.

It really doesn't matter to me though, since I have made 300% on my portfolio of natural resource stocks since 2001. No matter how bad it gets I'll be laughing at people like you.