They preached to the rich that they had the answers – philosophically-driven investment vehicles for the rich. Some crawled and leaped into emerging markets (high-growth but unstable developing countries), a few financed movies while others created and plied the infamous derivative trade – many packaging subprime mortgages, rating them in tranches and either holding them or selling them as high-yield instruments to institutions like Bear Stearns, AIG and Lehman Bros. A lot of billionaires were born and made in those deals.
Today, even the federal bailout has excluded investing in these funds, as hedge funds are pulling their investments out of emerging markets as fast as they can, tanking the local currencies against a rising dollar and yen. Investors are pulling their money, when they can, out of hedge funds themselves (literally dumping their investments in the already volatile marketplace), and that is a big shoe rapidly slipping off the foot ready to drop. The New York Times today: “Hedge funds lost an estimated $180 billion during the last three months and some are near collapse. Investors are demanding their money back, and Wall Street is bracing for a shake-out in the $1.7 trillion industry.”
Since many of these funds still carry the subprime mortgage derivative bundles, any attempt by banks to lower interest rates or reassess principal necessarily makes the subprime mortgages that remain in those funds worth even less. So what are the funds holding such toxic derivatives doing about this potential further dilution in their retained subprime derivative packages? What every other red-blooded American company would do under the circumstances. Sue the banks to stop them from fixing bad mortgages with realistic interest rates!!!
Today’s New York Times also reports that: “At least two funds, Greenwich Financial Services and Braddock Financial, have told banks that they may take legal action if loans are renegotiated in a way that hurts the funds’ financial interests.” Ooh baby! Calling all lemmings! There are some hedge fund guys out here beginning a new suicidal march to the sea! Okay hedgey guys , bring it on, and then let’s RICO (Racketeer Influenced and Corrupt Organizations Act) them into some free room and board and regulate them out of existence!
I’m Peter Dekom, and I’m feelin’ it!
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