Posted on 09/09/2008 2:53:54 PM PDT by tcostell
I couldn't agree with you more.
I work in quant equity, but started my career in energy. the end of quarter end of year rebalancing issue is more focused on "unleveraged long only funds".
Investment vehicles were created which were less transparent and less liquid than other instruments. Because of this, these instruments were less susceptible to the discipline of the market and only finally came to be adequately valued after it was too late to prevent a major collapse in the credit market.
I have a problem with the greatest and most creative minds being used to come up with new and better investment vehicles rather then new and better pharmaceuticals, energy sources, materials, material uses, chemicals, industrial processes, etc.
It seems to me that there are currently more than enough ways for those people with good ideas to get the funding they need to turn their ideas into reality. There is no real need for yet another way to repackage risk so that all the benefits go to a few, and the risks are sucked up by the unknowing, e.g. pensioners whose fund managers picked up one to many glossy hedge fund brochures.
I don't know who was helped by slicing and dicing millions of loans into trillions of parts and repacking them to the point of complete obfuscation.
I also have a problem with so much wealth being concentrated in so few places. Some of that wealth can be used (and was) to lobby politicians to look the other way. Now that these entities which are "too large to let fail" are starting to fail, the burden is being put on the shoulders of the taxpayer rather than the fund managers.
If we know ahead of time that the government will not allow businesses worth more than $X to fail, then no business should be allowed to be worth more than $X. What we have now is a weird system where we allow a supposedly free market system to drive toward the edge of a cliff, and when it goes over the edge it falls into a socialist safety net. If there were no net, then let whomever wants to drive over the cliff, but unfortunately there will always be a net comprised mainly of the backs of taxpayers.
Thanks for your informative, well written post. I’ll link to it the next time I come across someone from the “torch and pitchfork” crowd which should be any minute now.
As long as the margin on oil is raised to the margin of everything else and the hedge funds take delivery of the oil they buy, I’m cool with it. Otherwise, not so much.
LOL, I just saw the torch and pitchfork graphic on your blog, after I posted the above reply.
As for all that other stuff... I'll go create new drugs as soon as the government gets out of the way and lets me get compensated well for it. Until then I'm going where my higher than average intelligence will produce a higher than average income. That's wall street.
you'll notice that you aren't hearing about hedge funds blowing up because of the credit crisis, just investment banks. We manage risk, they didn't.
that isn't to say that there hasn't been other errors made, but on the whole the hedge fund industry is perfectly healthy right now, but the banking industry is taking a beating. You shouldn't mistake the two.
In my experience the only problem people ever really have with the concentration of wealth is that not enough of it is concentrated in their account.
Yeah ... it can be used for evil as well as good I guess. But remember, torches and pitchforks don’t kill people... angry mobs kill people...
Thank you for posting this.
I sent this to my nephew who is running a hedge fund in Texas ..Thanks
Like I said, most of us are just two degrees or so away from one another so your nephew and I probably know some of the same people.
The concept of secretiveness being the normal and necessary companion to extremely valuable investment decision processes is over the heads of reporters from the Leon Trotsky school of journalism, and unfortunately over the heads of many FReepers as well. I mean what possible reason could a hedge fund have for wanting to keep secret that it has accumulated holdings of 31% of the bank debt of a certain bankrupt company, and is looking to buy a little more? Clearly a sign of nefarious financial wrongdoing, in the minds of people to whom “blocking position” suggests something about a football game.
Non-Member Customer Initial Margin $12,488
hedge funds take delivery of the oil they buy, I’m cool with it.
LOL!
Otherwise, not so much.
LOL!
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