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Politics : Ask Michael Burke
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To: Merritt who wrote (41366)12/29/1998 6:26:00 PM
From: Jess Beltz  Read Replies (2) of 132070
 
Merritt, simply put, make it illegal for them (the banks) to lend money to a hedge fund using the money to cover losses on its own speculative position in equities, derivatives, or anything else. I would never prohibit the banks from using derivatives to hedge. Indeed, i teach a class on just this type of interest rate risk management. However, commercial banks have no business using derivatives, or a position in someone else's derivative-linked speculation (ala L-T Cap. Mgmt.) to go after a quick, large return. The laws of risk and return in financial markets will always catch up with you in the end, and the risk-driven losses of public money (depositors) is to be avoided with legislation if necessary.

jess
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