question of the day:
United Capital's Devaney Halts Redemptions
From Bloomberg: United Capital's Devaney Halts Redemptions on Funds
United Capital Markets Holdings Inc. ... halted redemptions on some of
its hedge funds that invest in subprime-mortgage bonds.
...
``We did that as a defensive move because we had an unusually high
number of redemption requests and we didn't want to be a forced seller
in this market,'' Gregory said in a telephone interview. One of the
redemption requests was from an investor who had put up about 25
percent of the funds' money.
My question:
Is it possible to have a "run on hedge funds" similar to a run on
banks? Surely this can be postponed until the next quarter end -
Sept. 2007. But what if everyone heads for the exits for hedge funds
in this area, asking for redemptions? Does every investor's
investment get "frozen" causing panic in all hedge funds? What can
the FED do to offset this? They can't inject money into these "can't
lose" hedge funds that offered double digit returns, negligible
volatility, and never a down month. What am I missing? Or should I
be aggressively buying VIX futures?
can't have a run, if the hedge bank says no to redemptions. got new game, old play?
Banks used to do the same during runs, no?
You think you have liquidity at the bank and find out that you really
don't. (bank run)
You think you have liquidity quarterly with your hedge funds and find
that you don't.
Hedge Funds become forced sellers of CDO paper, no new money into
hedge funds, and withdrawal demands on all types of hedge funds,
forcing deleverage, and the game begins... no?
i guess the question is also this: what if you had a bank run, but the banks are hedge funds. has that ever happened before in history??? will the crowds be standing outside the buildings where the hedge funds are housed??? ready to mob the managers or lynch them?? what's the most recent template? the run on accounts in argentina during the default? those poor folks were not only stuck, but wholely abandoned. this time, the masses are of a slightly different flavor though. Unless traditional banks also become targets of the run.
worse though, these "new banks" are made totally out of derivitive paper. you can't demand something that suddenly ceases to exist, can you? so what if the fed steps in and says, like a resolution trust corp, we'll buy everything at 50 cents on the dollar and give it to the accounts of record. either way, 50% of the original assumed wealth is suddenly gone to money heaven. and from there what? suddenly everything that was assumed to back the paper is suddenly also reduced in value in this sudden deflation? is this some kind of bizarre historical repeat of 1929, but it starts here instead of the most obvious places?
and what happens to all the side bets: i.e. the insurances? and what happens to the california pension fund if they announce formerly how much of this junk they held? will the accounts wait to see how much of a percentage of the entire fund was wiped out, or just assume the worst and start liquidating?? mirrored by hundreds of other retirement funds large and small across the spectrum??? who will have the power to step in to bring order in a financial chaos of this kind, when no one knows where anything is, what it is, how much of it there is ad infinitum? is this where (and the imagination takes a movie like turn), the bush junta steps in and declares itself in charge for the duration? (no time line offered).
meanwhile between the fed and the junta, you get zimbabwe or its mirror image, either way everything worthless that you have, everything Weimar expensive that you need. and everybody armed to the teeth already in tee vee nation.
how's that for a random thought? <g>
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