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To: Brad Bolen who wrote (54186)	9/29/1998 1:53:00 AM
From: Robert H.	Read Replies (1) \| Respond to of 58727

Very complicated; ...bottom line is 26 trillion is a lot of $$. At this time banks are trying to call in some of the leverage credit that they have extended. This will make the funds unwind positions. ..sell assets.. and could create a sell-sell chain reaction. The bailout of last Wed. and Greenspeaks lowering of the interest rates are all part of the same game. Mr Peabody said: "In a fully deregulated system it is difficult to predict where the next implosion will occur." He estimated that the notional value of the US banking system's exposure to leveraged derivatives at US$26 trillion. Mr Peabody, a long-term critic of high levels of debt within the banking system, estimated that 95 per cent was concentrated in the top-eight US banks.

To: Brad Bolen who wrote (54186)	9/29/1998 2:34:00 AM
From: Elroy Jetson	Read Replies (1) \| Respond to of 58727

Hedge Funds typically borrow money to go both Short AND Long the same security. Only problem is these "low-risk" straddles cause horrendous losses if market volatility increases past certain tolerances. This is what wiped out LTCM hedges in the collateralized mortgage market. Many funds calling themselves "hedge" simply borrow money to take on huge positions short and long in various securities. A recent favorite has been borrowing Yen at 1% to buy a commodity like gold, or short a market like Hong Kong. As the banks lending the money get scared by the losses at LTCM, they demand more capital and charge higher rates on the loans. The hedge funds have to close the positions due to margin calls or increased interest costs. If they own gold they have to sell, if they're short Hong Kong they have to buy. Unwinding these positions will have unpredictable effects sending some prices higher and others lower.