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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: James C. Mc Gowan who wrote (198)	9/25/1998 8:17:00 PM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 2794

James, nothing personal was meant by my questioning of your use of the word pirates. I wanted to get a handle on why you thought they were pirates. I know a lot of hedge fund managers. Most are decent people but there are some who make pirates look like boy scouts. So I recognize the possibility and was more interested in wether there was a specific that you were referring to. You ask about my comment ...large and prestigious(will) admit some very big losses. You ask who I meant. There have been a number of announcements from European commercial banks already, specifically UBS. I need to be careful about stating names because I don't know what is already public and some of what I have heard may be the usual market rumours. But I don't believe any US commercial banks are among the losers but a couple of investment banks/brokers are. There are also at least two institutions who have injected capital who were not previously investors so not all the lenders would be short candidates <ggg>. I am sorry I can not be more specific but it has been a pretty long 2 days and there are lots of rumours mixed in with the facts and I don't want to mislead anyone. Re your comment about wether executives at some of these firms who are injecting capital into LTC had personal investments in the fund. I don't know if this is true. But if it is true it is a problem but not the one that you imply. They are not in fact lending in order to bail out their personal investments. Their investments are gone, toast. Those personal investments have been 90% wiped out and that principal ain't coming back. So there is no conflict, in my mind, in this lending. Where I see a big problem is that these firms were apparently lending quite aggressively to partnerships in which these executives had a large personal stake. If I were a shareholder in these institutions I would have some questions about the terms of the original relationships. I believe Seidman is correct about the lack of transparency in some of these funds. But it is not as if the market didn't have the ability to demand greater transparency. I have investments in several hedge funds. But I have only invested in funds that provide full disclosure on what they are doing. I also do business with hedge funds and my firm is very rigorous about knowing what they are up to and staying on top of their collateral. The problem is not everyone does this. The investors in many hedge funds get mesmerized by big returns in up years and stop don't treat their money seriously. At some level this is really know different from mutual fund investors who have come to believe 25% returns are normal. The banks also did a terrible job of supervision. They have the capability to monitor this risk and demand transparency. But as Rubin implied in his testimony, after six good years they got lazy and started competing with each other with ever easier credit terms. So if you want to be angry about this thats fine. There is certainly enough arrogance among hedge fund managers to justify some anger. But don't let the lazy and greedy bankers and investors off the hook either. Henry

To: James C. Mc Gowan who wrote (198)	9/26/1998 5:35:00 PM
From: Worswick	Read Replies (2) \| Respond to of 2794

Jemes hello this beautiful Saturday afternoon. Let me return for the last time to the idea of pirates, and your idea hedge fund managers as "pirates". My only point in my former post was that on the frontiers of mathematical modling of risk in the new computer age... I see a lot of death. DEATH. DEAD PEOPLE. Like the early aviation pioneers who were dealing with a new technology that was not and still is not properly understood. .....And....yes! It is possible to check everyone's credit Henry and see that they are good people and a credit to the local temple and church. However, in times like these.... new things have had a tendency to jump out of the dark. Right? You simply have to admit since we have been having our conversations here... we are all discovering a more difficult and complex world where each day is a bit more risky. Ref. your ideas James about "the little people" and the Jeff Vinik's of this world I have said again and again that I don't view the melt down of the derivative world... as serious as it is to the traders that it effects and the lost money of these traders and hedge fund groups... my worry which grows each day that passes is that rather, when you use leverage of this magnitude in the world of financial exotics (I am coming to use the term financial exotics) that when you gear positions like this they have a tendency in crisis to unwind very quickly. Like instantaneously. What I am worried about (quite selfishly) is the whole world's financial system melting down in say, 15 minutes. We now live a cashless society for the most part; and, suddenly, we live with the promise of a whole new different, carnivorous kind of cashless society. It is that later society I worry about and I particularly worry about how I will fit into it, personally. My best to you for your thoughtful posts, Clark