Hal thanks so much for posting the NY times piece. An excerpt,
"..... Investors were nervously watching developments to determine whether other big players in the universe of 3,000 hedge funds, many of which had bond market positions not unlike those of Long-Term Capital, would face pressure from banks to sell securities to pay off margin loans, potentially weakening the already-fragile world bond market".
And from another article today in the Times, "..."Hedge funds are very strongly regulated by those who lend the money," Greenspan told Congress earlier this month.
But Greenspan and Treasury Secretary Robert Rubin have been warning for months about the perils of lenders becoming too sanguine about risk. And in the case of Long-Term Capital, it quickly became clear that some of the world's biggest and most sophisticated banks and investment houses had little if any idea what bets were being made with the money they lent.
And it raised anew the question of whether the regulatory approach to hedge funds is adequate today.
Many hedge funds operate under an exemption in the Investment Company Act of 1940. The exemption was intended to allow family businesses that invest in securities to avoid federal regulation. The exemption covered pools of money having fewer than 100 investors, which did not offer shares to the general public.
Funds can also be incorporated offshore and not allow Americans to invest, thus escaping the jurisdiction of the federal government. Or hedge funds can operate under the terms of a 1996 amendment to the federal securities laws that exempts from regulation those funds that limit themselves to fewer than 500 "sophisticated" institutions or individuals, defined as those that invest more than $25 million or $5 million, respectively".
Which all goes to show you, gee... we're talking about big numbers and big problems! I had said at the beginning of ths foruum that my estimate of the amount of Exotics and Derivatives ( I am adding exotics, because the term probably better describes many of hese trades) at somewhere betwen $200-$500 trillion worldwide. At the low end this was 3X what the Fed admitted to.
The NY Federal Reserve Bank put the number at $85 trillion plus an undetermined amount.
Some idea of the scale of these numbers.... trillions and trillions can be gained from the fact that the GNP of the whole world during the boom years was 23 trillion, as my feeble leaking aged brain seems to recall.
My best to you,
Clark |
