***Off Topic***GM, hedge fund problems (I apologize to anyone who only wants disk drive information, but this topic does affect disk drive stock prices).
What people meant by saying that Milken was ruined was: he was no longer considered a hero or financial genius. They didn't mean he was broke, which is the usual meaning of >ruined<.
When Milken was busted, he personally was worth over a billion dollars, even after paying fines of hundreds of millions of dollars (or were the fines even higher, I don't remember exactly).
And that doesn't count the money his close relatives had/had made off of Milken's fiancial gains.
The people at this hedge fund are not broke. Lawrence Kam surely has a much clearer idea of what happened with this hedge fund than I do.
But my understanding is that the equity of the fund was as low as 3% or less of the face value of the underlying securities.
So if the hedge fund goes bust, who takes the loss after the hedge fund? That's the point.
You're talking about possible losses of billions of dollars for this one hedge fund. And what about the other hedge funds?
(That's why the rumor last week that Lehman Brothers was bankrupt. Lehmann denied it, but who is going to believe anything a Wall Streeter says anyway? Russia denied it was going to devalue, the very day before it devalued. Treasury Secretary Rubin recently denied the US was going to intervene in the Yen/Dollar market, and it was like two days after the denial that the US did intervene in the Yen/Dollar market.
(For people like you and me, it's called lying or breaking your word. But when it's done on a business/government/legal level, it's called something else.)
But the point is: Who will eat the potential losses, if those losses really happen?
The hedge fund can't, because the equity requirement is only a tiny fraction of what is required for an individual investor like you or me.
The hedge fund managers are not getting wiped out. But even if they were wiped out, it wouldn't address the main point: Who will take the loss after there is no equity left in the account?
And that's why the Federal Reserve stepped in. Not to save the hedge fund managers, but to try to keep the current (and growing potential) loss from the banks and brokerages.
And if you think about it, if the banks and brokerages take the hit, you are going to get killed in the stock market.
Can you imagine what would happen if Lehman Brothers and/or Merrill Lynch went belly up in the current market?
Regards,
Larry
PS: Survival of the fittest is nice theory, but you and I will get eaten long before the fittest. The system is designed that way.
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