My Beautiful Wickedness

Keep your eyes open on September 30th
September 28, 2008, 8:48 pm
Filed under: Uncategorized

That’s the quarterly window for moving money out of hedge funds, or redemption. When investors cash out of a hedge fund, the fund has to sell off their investments (at a time when the markets are way soft) to pay out. If enough investors insist on redemption it can sometimes trigger wholesale exits from funds and it’s easy to imagine a situation in which people stampede out of hedge funds and the fund won’t have money to pay them all back due to the sudden loss of value of their investments.

While I don’t pretend to be a financial guru (far from it), I am worried that even moderate rearrangements of this sector of the economy ($2 trillion and counting) in an already embattled part of the financial industry (about a quarter of the hedge funds have already collapsed in the last year or so) will be sufficient to mess up whatever delicate equilibrium the markets might have achieved. Equally alarming is the fact that many securities are backed by hedge funds. If downgraded hedge funds go belly-up, as they might because of the new SEC rules against short-selling, then securities backed by these hedge funds also fall over.

Anyhow, Tuesday is the big day. That might help to explain why it was so critical for the Economic Stabilization Act to be done by tonight (before Asian markets open) and to look like it might have a prayer of passing. Lawmakers really need to keep the stock market up and investment-based securities viable so that we don’t wind up with a big pile of dominos.


4 Comments so far
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But doesn’t it make you feel oh so much better that Tom Wolfe says that the hedge fund guys all have enough personal profits squirreled away elsewhere that they won’t any of them ever have to work again if they don’t want to? That’s what makes them Masters of the Universe, after all.

Comment by nm

I’ve never been into Tom Wolfe — he’s made a career making flip observations and banging drums in his own little Iron John circle.

I notice that the Times has now come out with an article that pretty much says what I said. Wouldn’t it be nice if the national newspaper of record’s business reporters actually had more insightful things to say about the global financial world than some yahoo history professor with an internet connection in Albany?

Comment by bridgett

Well, there’s not all that much going on that someone who watches the markets regularly and intelligently hasn’t foreseen.

Comment by nm

Masters of the universe=thieving scumbags.

Comment by democommie

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