Comments on: Hedge Funds Make A Political Mistake http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/ What happened to the global economy and what we can do about it Sat, 21 Nov 2009 02:32:50 +0000 http://wordpress.com/ hourly 1 By: guidothekp http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18919 guidothekp Mon, 29 Jun 2009 22:22:17 +0000 http://baselinescenario.com/?p=4190#comment-18919 Yes, you now have no risk. You took the cost of the risk (the price you paid for the CDS) and moved on. Whatever happens from this point, you are hedged. The original bond still has a risk in it. Whoever, buys it without an insurance is still exposed to the probability of a default. It is as if you conditionally sold the bond to insurer. Yes, you now have no risk. You took the cost of the risk (the price you paid for the CDS) and moved on. Whatever happens from this point, you are hedged.

The original bond still has a risk in it. Whoever, buys it without an insurance is still exposed to the probability of a default. It is as if you conditionally sold the bond to insurer.

]]> By: guidothekp http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18860 guidothekp Mon, 29 Jun 2009 14:33:42 +0000 http://baselinescenario.com/?p=4190#comment-18860 The CDS shifted the risk to entity that sold you the CDS. If Simon defaults, he will find the yield on his future bonds going up. The CDS shifted the risk to entity that sold you the CDS. If Simon defaults, he will find the yield on his future bonds going up.

]]> By: pete muldoon http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18762 pete muldoon Sat, 27 Jun 2009 20:50:48 +0000 http://baselinescenario.com/?p=4190#comment-18762 The risk is that Simon won't pay you back, and then whoever wrote you the CDS won't be able to pay. The risk is that Simon won’t pay you back, and then whoever wrote you the CDS won’t be able to pay.

]]> By: THE BARRICADE » Blog Archive » Links Zeitgeist - Contrarian Grapeshot for a Teetering World http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18743 THE BARRICADE » Blog Archive » Links Zeitgeist - Contrarian Grapeshot for a Teetering World Sat, 27 Jun 2009 16:16:30 +0000 http://baselinescenario.com/?p=4190#comment-18743 [...] Hedge Funds Make a Political Mistake (Baseline) [...] [...] Hedge Funds Make a Political Mistake (Baseline) [...]

]]> By: Paladin http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18740 Paladin Sat, 27 Jun 2009 15:41:02 +0000 http://baselinescenario.com/?p=4190#comment-18740 Hedge funds.... manipulators extraordinaire. Way too big. BTW, many of the top key fund players have Mafia roots and connections. For THE exposé of this link, see www.deepcapture.com Hedge funds…. manipulators extraordinaire. Way too big. BTW, many of the top key fund players have Mafia roots and connections. For THE exposé of this link, see http://www.deepcapture.com

]]> By: Marisan http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18693 Marisan Sat, 27 Jun 2009 02:12:02 +0000 http://baselinescenario.com/?p=4190#comment-18693 Ted K, It appears that you are a member of the class that has a major impact on me and my family (without appearing to be condescending OR insulting) I thought the idea of CDS's was to mitigate risk in the loaning of money. You appear to say that mitigation of risk is only for the Masters of the Universe not for members of the peasantry such as me or my family. I suggest that you go back to reading the Wall Street Journal and ignore the effect that the decisions (and greed) of the Masters of the Universe has had upon the peasants such as I. For your information I don't watch Oprah Winfrey or Reality TV shows and I wish to hell I could forget all about it. Ted K,
It appears that you are a member of the class that has a major impact on me and my family (without appearing to be condescending OR insulting)
I thought the idea of CDS’s was to mitigate risk in the loaning of money. You appear to say that mitigation of risk is only for the Masters of the Universe not for members of the peasantry such as me or my family.
I suggest that you go back to reading the Wall Street Journal and ignore the effect that the decisions (and greed) of the Masters of the Universe has had upon the peasants such as I.
For your information I don’t watch Oprah Winfrey or Reality TV shows and I wish to hell I could forget all about it.

]]> By: Ted K http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18689 Ted K Sat, 27 Jun 2009 01:37:37 +0000 http://baselinescenario.com/?p=4190#comment-18689 Marisan, I really don't mean to be condescending or insulting. But if you can't figure out that when you give someone else (including family relatives) your money, there is ALWAYS risk involved, just go back to watching Oprah Winfrey and your favorite reality TV show and try and forget about it. Marisan, I really don’t mean to be condescending or insulting. But if you can’t figure out that when you give someone else (including family relatives) your money, there is ALWAYS risk involved, just go back to watching Oprah Winfrey and your favorite reality TV show and try and forget about it.

]]> By: Marisan http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18686 Marisan Sat, 27 Jun 2009 00:59:49 +0000 http://baselinescenario.com/?p=4190#comment-18686 So I increase the return on investment to cover the costs of the protection. Again, where is the risk? So I increase the return on investment to cover the costs of the protection.
Again, where is the risk?

]]> By: Dave http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18684 Dave Sat, 27 Jun 2009 00:50:16 +0000 http://baselinescenario.com/?p=4190#comment-18684 You forgot that you had to pay for the protection. Pricing of the CDS and counterparty risk are costs. No free lunch. You forgot that you had to pay for the protection.
Pricing of the CDS and counterparty risk are costs.
No free lunch.

]]> By: Top Posts « WordPress.com http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18683 Top Posts « WordPress.com Sat, 27 Jun 2009 00:50:08 +0000 http://baselinescenario.com/?p=4190#comment-18683 [...] Hedge Funds Make A Political Mistake The political flavor of the month is to push back against even the Obama adminstration’s mildly reformist [...] [...] [...] Hedge Funds Make A Political Mistake The political flavor of the month is to push back against even the Obama adminstration’s mildly reformist [...] [...]

]]> By: Marisan http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18681 Marisan Sat, 27 Jun 2009 00:39:26 +0000 http://baselinescenario.com/?p=4190#comment-18681 As a Financial Illiterate I have some questions. Say I loan Simon Johnson $100.00 and I expect to be paid back $110.00 as return on investment. The extra $10.00 is to compensate me for the risk that Simon might not pay me back. If I then enter into a CDS for the $110 that Simon owes me where is the risk? If there is no risk why does Simon have to pay me the $10.00 return on investment (compensation in case that Simon might not pay me back)? I'm curious. Regards Marisan As a Financial Illiterate I have some questions.
Say I loan Simon Johnson $100.00 and I expect to be paid back $110.00 as return on investment. The extra $10.00 is to compensate me for the risk that Simon might not pay me back.
If I then enter into a CDS for the $110 that Simon owes me where is the risk?
If there is no risk why does Simon have to pay me the $10.00 return on investment (compensation in case that Simon might not pay me back)?

I’m curious.

Regards

Marisan

]]> By: yo http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18662 yo Fri, 26 Jun 2009 18:57:34 +0000 http://baselinescenario.com/?p=4190#comment-18662 The heavily regulated banks go down in flames and our treas secretary invents a plan for the unregulated hedge funds to help bail them out, and the result? Of course the result is that hedge funds are the culprit in the whole financial mess, and need to be heavily regulated. lol Yet another example of the upside down idiocy going on in this country. Maybe hedge funds are causing global warming, too. The heavily regulated banks go down in flames and our treas secretary invents a plan for the unregulated hedge funds to help bail them out, and the result?

Of course the result is that hedge funds are the culprit in the whole financial mess, and need to be heavily regulated. lol

Yet another example of the upside down idiocy going on in this country. Maybe hedge funds are causing global warming, too.

]]> By: pete muldoon http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18651 pete muldoon Fri, 26 Jun 2009 16:45:53 +0000 http://baselinescenario.com/?p=4190#comment-18651 "Advocates have a point, of course, when they argue that big banks rather than hedge funds were primarily responsible for crisis." But this is a very small sample, and doesn't tell us anything about the future. My guess would be that if banks are more tightly regulated, we'll see more capital flow to to less-regulated hedge funds. And the fact that hedge funds emerged relatively unscathed is immaterial to the argument of whether they should be better regulated. Up to this point, financial regulation seems to be implemented as a response to disasters that have already occurred; we aren't very good at anticipating problems. This is probably because there is no political will to regulate until it's too late, but we should be working constantly to try to create some. The LTCM fiasco demonstrated that hedge fund blow ups can have a serious effect on markets. LTCM's Fed-engineered bailout came perilously close to unraveling. Had that happened last October it could have had the same type of effect that Lehman did. “Advocates have a point, of course, when they argue that big banks rather than hedge funds were primarily responsible for crisis.”

But this is a very small sample, and doesn’t tell us anything about the future. My guess would be that if banks are more tightly regulated, we’ll see more capital flow to to less-regulated hedge funds.

And the fact that hedge funds emerged relatively unscathed is immaterial to the argument of whether they should be better regulated. Up to this point, financial regulation seems to be implemented as a response to disasters that have already occurred; we aren’t very good at anticipating problems. This is probably because there is no political will to regulate until it’s too late, but we should be working constantly to try to create some.

The LTCM fiasco demonstrated that hedge fund blow ups can have a serious effect on markets. LTCM’s Fed-engineered bailout came perilously close to unraveling. Had that happened last October it could have had the same type of effect that Lehman did.

]]> By: MortgageMods.org » Blog Archive » Secondary Sources: Greenspan on Recovery, Pay Cuts, Hedge Funds http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18648 MortgageMods.org » Blog Archive » Secondary Sources: Greenspan on Recovery, Pay Cuts, Hedge Funds Fri, 26 Jun 2009 15:33:16 +0000 http://baselinescenario.com/?p=4190#comment-18648 [...] Hedge Funds: Simon Johnson of the Baseline Scenario says that the hedge fund industry is making a political mistake by not embracing the new regulatory environment. “If hedge funds dig in too deeply with “the crisis was not our fault” position, that is just asking for trouble — and to be scapegoated — down the road. It would be much smarter to get out ahead of the political dynamic, and to propose ways to measure, control, and regulate risk. Voluntarily keeping hedge funds “small enough to fail,” without endangering the system, would also make sense – particularly if accompanied by a complementary political strategy that emphasizes that it is big banks that have done almost all the damage.” [...] [...] Hedge Funds: Simon Johnson of the Baseline Scenario says that the hedge fund industry is making a political mistake by not embracing the new regulatory environment. “If hedge funds dig in too deeply with “the crisis was not our fault” position, that is just asking for trouble — and to be scapegoated — down the road. It would be much smarter to get out ahead of the political dynamic, and to propose ways to measure, control, and regulate risk. Voluntarily keeping hedge funds “small enough to fail,” without endangering the system, would also make sense – particularly if accompanied by a complementary political strategy that emphasizes that it is big banks that have done almost all the damage.” [...]

]]> By: NoteMod.org » Blog Archive » Secondary Sources: Greenspan on Recovery, Pay Cuts, Hedge Funds http://baselinescenario.com/2009/06/26/hedge-funds-make-a-political-mistake/#comment-18646 NoteMod.org » Blog Archive » Secondary Sources: Greenspan on Recovery, Pay Cuts, Hedge Funds Fri, 26 Jun 2009 15:06:28 +0000 http://baselinescenario.com/?p=4190#comment-18646 [...] Hedge Funds: Simon Johnson of the Baseline Scenario says that the hedge fund industry is making a political mistake by not embracing the new regulatory environment. “If hedge funds dig in too deeply with “the crisis was not our fault” position, that is just asking for trouble — and to be scapegoated — down the road. It would be much smarter to get out ahead of the political dynamic, and to propose ways to measure, control, and regulate risk. Voluntarily keeping hedge funds “small enough to fail,” without endangering the system, would also make sense – particularly if accompanied by a complementary political strategy that emphasizes that it is big banks that have done almost all the damage.” [...] [...] Hedge Funds: Simon Johnson of the Baseline Scenario says that the hedge fund industry is making a political mistake by not embracing the new regulatory environment. “If hedge funds dig in too deeply with “the crisis was not our fault” position, that is just asking for trouble — and to be scapegoated — down the road. It would be much smarter to get out ahead of the political dynamic, and to propose ways to measure, control, and regulate risk. Voluntarily keeping hedge funds “small enough to fail,” without endangering the system, would also make sense – particularly if accompanied by a complementary political strategy that emphasizes that it is big banks that have done almost all the damage.” [...]

]]>