I try to read four newspapers before the day really starts, and also look through a couple of on-line sites. I skim the lead economic stories and randomly dig all the way through the paper to the end of some business/financial stories.
Sometimes the news jumps off the page, and sometimes it seeps through. Now, about two hours after looking at today’s weekend papers, I realize that something is stuck in my mind, rather like a tune that you can’t get rid of.
I read, in at least two places, various versions of the following proposition.
1. Hedge Funds, if they get into trouble, will not be rescued by the government
2. Big Hedge Funds are not in trouble
Statement #1 is presumably false. There is no way that any responsible government could let a large Hedge Fund fail at this point. The system is too fragile and the risks too obvious. In fact, the Europeans ratcheted up the pressure in this regard during the week, with their increasingly undiplomatic condemnations of the US for not saving Lehman. (Just wait until they figure out what really happened in the “rescue” of AIG.)
Statement #2 is interesting. I’m not taking a view either way on this; I much prefer to be agnostic and see what the data bring in. But I did note a story that mentioned that the US government had been asking financial institutions about their exposure to particular (named in the story) Hedge Funds.
Now, I don’t know about you, but when a representative of the federal government comes to my house, shows me identification and asks questions about a neighbor (yes, it has happened), I start to wonder – what exactly is this neighbor doing to attract the attention of the government (a notoriously distracted organization, except when it is very focused)?
I worry about the US crisis managers, particularly at the Treasury, who used to like to catch dominoes, until they found out how dangerous that could be – because you tend to knock over other dominoes. Then they switched to broader, more systemic and systematic approaches, which we have called for and applauded here (most recently, on Friday, they adopted the recommendation – from us and others – to recapitalize insurance companies). I really hope these crisis managers are not going back to their old ways.