Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: long-gone who wrote (24426)	12/16/1998 7:12:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116927

Now, how about that...? Bank Lending to Hedge Funds Studied Wednesday, 16 December 1998 W A S H I N G T O N (AP) FEDERAL REGULATORS, trying to unravel events leading to the near-collapse of a major investment fund, believe that banks lending to the fund should have examined it more closely. A presidential working group set up in the aftermath of the Long-Term Capital Management debacle is considering possible restrictions on such loans to hedge funds, a Federal Reserve official told senators at a hearing Wednesday. Brooksley Born, head of the Commodity Futures Trading Commission, said her agency is looking into other hedge funds that might have an impact on the stability of financial markets. Sen. Tom Harkin of Iowa, senior Democrat on the Senate Agriculture Committee, challenged the idea that the current regulatory system worked well in helping avert the failure of Long-Term Capital, a high-flying hedge fund for wealthy investors. After Long-Term Capital's managers bet big on interest-rate swings and lost, the fund's near-collapse in September threatened to disrupt world financial markets. The Federal Reserve helped arrange a $3.6 billion bailout of the fund by a group of big banks and brokerage firms. Harkin said the system allowed things to get too close to the brink. "It sort of reminds me of a car heading over a cliff," he said at a hearing held during Congress' recess, a rare occurrence. Harkin, committee Chairman Sen. Richard Lugar, R-Ind., and other farm state lawmakers are worried about the potential impact of the hedge fund debacle on farmers, who often use more conventional hedging techniques to reduce their production risks. After the Long-Term Capital debacle, Treasury Secretary Robert Rubin asked agencies making up the President's Working Group on Financial Markets to submit a report on hedge funds. The report is expected to be completed early next year. The banks that had made generous loans to Long-Term Capital "didn't ask enough questions" about the fund's risks and operations, testified Patrick Parkinson, associate director of the Fed's research and statistics division. "Some red flags should have been raised in the banks' minds," he suggested. Parkinson said the working group - made up of officials from the Fed, the Treasury, the Securities and Exchange Commission and Ms. Born's CFTC - is studying possible new curbs on bank loans to hedge funds. The discussions are still at an early stage, he noted. Fed Chairman Alan Greenspan told Congress in October that new government controls on hedge funds aren't needed. Greenspan acknowledged that the Long-Term Capital debacle was a failure of the current system, which relies on banks - rather than federal regulators - to supervise the hedge funds they lend money to. But he called it "a single mistake ... a very rare event." Three of the banks that extended credit to Long-Term Capital - Bankers Trust, Chase Manhattan and J.P. Morgan - are U.S. institutions that benefit from the taxpayer-financed deposit insurance fund. Richard Torrenzano, a spokesman for the group of banks and securities firms that rescued Long-Term Capital, declined comment on Parkinson's remarks. Spokesmen for the American Bankers Association had no immediate comment on the proposals being discussed by the working group. Lugar, noting that "lax lending standards" appeared to have played an important role in the hedge fund's meltdown, said: "More prudent practices on the part of lenders may ... need to be encouraged or even required." Long-Term Capital is one of as many as 4,000 domestic and offshore hedge funds controlling some $400 billion in investor equity. They are not subject to the same kind of strict disclosure and oversight rules as mutual funds because the more sophisticated investors presumably have the resources to look after themselves.