Roubini: “cannot rule out some systemically important hedge fund may get into trouble with systemic

[RedEarth]

Roubini: “one cannot rule out that some systemically important hedge fund may get into trouble with systemic consequences.”

Oct 15: Lehman Brothers Holdings Inc.'s hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago--> "If your bank fails, you still have to pay your mortgage." Moreover, hedge funds are among the net sellers of credit protection in the $54 trillion credit derivatives environment and might be called to perform on their obligations wrt Lehman, WaMu, Kaupthing, etc.


Perfect Storm for Hedge Funds: Short-selling rules were altered in a flash, the implosion of brokerages reduces the possibility for borrowing money, they’re stuck with delevering, and to top it off, many are getting hit with redemptions as September comes to a close, marking the end of the year for many funds. (MarketBeat) Redemptions could lead to fire sales and vicious circle.

FT Alphaville: Because so many firms hold similar positions, forced selling by one in response to redemptions can have ripple effects, forcing other funds to sell.

Rating agencies start to downgrade collateralized fund obligations (C.F.O.) which are the hedge fund equivalent of mortgage-backed securities: securities backed by hedge funds. Some have a 7-year lock-up period. While few in number, C.F.O.’s represent a broad swath of the $2 trillion industry.

http://www.rgemonitor.com/index.php

[Doctor_J]

1. Stupid used the word "systemic" in one of his drug-addled speeches over

the weekend. I wish someone would ask what he means by that. We should spend his last 3 months in our house ridiculing him, so his legacy will be set in stone.