Hedge Fund Discussion | A Commentary Piece

Hedge Fund Discussion

Hedge Fund Discussion Piece

I can't tell if Mr. Berko is for or against hedge funds, I will leave it up to you to decide....

Dear Mr. Berko: There's big trouble in the $3 trillion hedge fund industry. Many have lost massive amounts of money because the market has gone against them and thousands of hedge fund employees are losing their jobs. The Hedge Fund Sector is a very vital sector of our economy and I've not heard a word from the Department of Treasury or the Federal Reserve about helping the hedge fund industry in this economic crisis. In 2000, then Federal Reserve Board Chairman Alan Greenspan rescued Long Term Capital Management and saved it from complete collapse. Many hedge-fund investors can't get their investments back because the hedge funds can't get the credit they need to finance their portfolio positions or investor withdrawals. Do you believe the government should assist these people who invested their money in good faith? -- H.W., Boston.

Dear H.W.: Hedge funds are being rocked, socked, knocked, clocked and docked by the market. Most deserve every blow they get and then some. These financial leeches provide zero-sum benefit to our economy. Many of these funds contributed to the mortgage crisis, the credit crisis, the oil crisis, the bank crisis and the soon-to-occur credit card crisis as well as the soon to-occur-crisis with the Big Three auto companies. These funds, along with Goldman Sachs, Lehman Bros., Bear Stearns, etc., helped push the price of oil past the $145 level by trading contracts between themselves at predetermined prices. They are one of the reasons many Americans had to pay $4.25 a gallon and more at the pump. These funds traded and shorted billions of dollars of subprime mortgage securities between themselves, creating unprecedented volatility and cascading losses. And these hedge funds shorted hundreds of millions of shares of bank stocks, collapsing their market values, pushing Countrywide, Fannie Mae, Freddie Mac and Washington Mutual into bankruptcy.

Marrow suckers These hedge funds gleefully sucked the marrow from the backbone of our financial system. They had this power because they are unregulated (they had strong lobbyists in Congress) and are not required to abide by the same rules that control the trading activities of Fidelity, T. Rowe Price, Vanguard and other funds owned by most of the less-affluent public. Many of the 10,107 hedge funds are hurting badly, very badly, as they got caught on the wrong side of the oil market, the wrong side of the commodity market, the wrong side of the dollar, the Yen and the Euro. They got sliced and diced in the derivative market, were boxed by the credit market and bet the wrong horses in the mortgage-backed securities markets. Things got so bad that investors began a stampede to safety and these funds, which were highly leveraged, didn't have the capital to return principal to their hugely wealthy investors. Read more...

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