What happens if a hedge fund is upside down & the investment bank running it fails?

[Blackhatjack]

I know that all accounts have to be settled, but wouldn't that kill off the hedge fund and cost the investors a huge amount of $$ ?

[Vincardog]

1. in a word yes

[MNDemNY]

2. What happens is...The Tax payers eat it all.

[catnhatnh]

3. They contact.....

.....youwalkaway.richfolks.com........cuz' when corporations do it,it's OK.

[MilesColtrane]

4. In the case of Bear Stearns, they get a loan in the billions of dollar range from fed...

...then they get purchased by JP Morgan Chase.

[Warpy]

5. Of course

Hedge funds always go into Ponzi borrowing at some point to keep their returns up. That means they can't count on their income to pay their investors and have to depend on the increasing paper profit of their assets to do so. When those assets fail to appreciate, they have to start borrowing.

Hedge funds had one other trick up their sleeves, home loans. They bought up home loans and snipped them into pieces, laundering them into traunches based on what the fund decided was the potential risk. These structured investment vehicles were so exotic that nobody knew exactly what they represented or how to value them and every time they changed hands, the price was bid upwards.

Since those SIVs were basically bum loans in California and Florida, institutions are now discovering that their assets columns contain a lot of thin air and wishful thinking and this is what is causing the present crisis.

The robber barons have been on a 27 year bender. They're just about to start sobering up. We the peasants will get hit the hardest, of course, we always do. However, they're going to be falling a lot farther.