massaccio, please dig into this mess and help pry open the eyes of the Hope hung firepups. I don’t believe the reality is anywhere close to having sunk in with the majority.

1.6 quadrillion in toxic derivatives superimposed on a global economic GDP of 50 to 60 trillion.

So, how do we make sure the prols don’t notice? — HCR! — and draw it out all you can Dems!

We are looking at a 900 billion debt service by 2020, – HC anyone? I don’t think so.

When did Lewis Carroll come back to life and decide to start writing about investments?

For surely if we follow the folks writing about hedge funds as some mystical example of the ‘free market/invisible hand’ in operation that just can’t really be written about or regulated, we have fallen into the rabbit hole.

oh yes, definitely in wonderland.

So, what good are hedge funds? You can’t trade outside of the funds, so therefore, even the profits, if that was all the investors want to invest elsewhere, say in manufacturing, they cannot easily do so and maintain existence in the funds. Anyone can see it’s a disastrous example of an ouroboros, destined to take everyone with them.

Even if the “managers” don’t see it, what about the investors?

“use past financial market data to predict the future”

That works so well. Markets never crash, and are always rational & logical, correct? Never fear based?

We need to pull our money from Wall Street and the big banks and keep it closer to home (i.e. local banks, neighborhood business speculation). The system is not working, and no lessons have been learned from the Crash of 2007-08.

Great minds etc. Over at the Seminal.firedoglake;
‘The top owners of the nation’s wealth make up only 20% of the population, owning more than 90% of the total wealth…making it obvious through simple math that this is not enough to spend the nation back to wealth, even if the very rich take a yet larger proportion of the wealth for themselves. What is spent, and goes back into the economy, comes largely from those who live off of their disposable income. Spending about 10% of total wealth is not enough to sustain our total economy.’
http://seminal.firedoglake.com/diary/33746

Hopefully no one still believes the Republics’ lie that tax cuts for the wealthy fix all economic problems.

Hedge funds hire mathematicians and physicists, give them big computers and in return, they get formulas that use past financial market data to predict the future.

;-))))))))

One of my biggest disappointments in Obama was his seeming embrace of trickle down theory as conventional wisdom. I always knew he wasn’t a great, progressive savior but I did think he would at least be wiser than that. Maybe it’s not wisdom though. Maybe the wealthy have just become so powerful that it’s necessary to pander to them if you’re a politician, even a president. Either way, it sucks.

This is funny stuff. People voted for (Clinton, Bush, Obama) a skewed distribution of wealth and now they have one. People voted for a depression and now they have one. Repugs are put into office by the Defense industry so we have continual fake wars, Wall Street puts Dims (at the highest levels of the Dim Party) into office so now we have a Finance economy vice a manufacturing economy, you do not create real wealth in a Finance economy. Then we have shills for the Democrats on MSMBC. Funny, funny stuff.

You need to abandon the Right/left frame. The paradigm has shifted like a tectonic plate under our feet, certainly since the election of Clinton.

The new frame is Class Warfare, and in this the gullible ‘tribes persons’ right and left are being without bias decimated by Obama’s Economic Class mates.

Burry your old useless frames,- to paraphrase the villain in the 2006 version of Casino Royale ‘ your friendly party is actually my friendly party’.

I wish I wrote down the name of the article but it’s in rolling stone, it tells us what happened with the bail out in differant terms

corps like goldman sacs got the government to declare them banks on a sunday, overnight, that gave them the ability to borrow money for zero percent, and then they loaned that money BACK TO THE GOVERNMENT AT PROFIT

worse then that, they somehow got advisory positions on the board of finances with the fed, KNEW policies before they went into effect and were able to create policies based on that knowledge

FOR INSTANCE;

they knew the government was going to buy up toxic assets, so concerns like goldman sacs BOUGHT CRAP WITH THE KNOWLEDGE THE GOVERNMENT WOULD BUY THEM AT PROFIT

this is sick stuff, I’ll try to get the link

Our authors reject the possibility of requiring transparency in the trading activities and positions of hedge funds. That would create a moral hazard, they argue, because management would assume that regulators would act if they thought there was too much risk. Even worse, it might expose the proprietary trading strategies of hedge fund managers.

Yegawds!!
The earth would quake!!
The seas would roil!

Hedge fund trading strategies might be ‘exposed’?!
Do I hide under my bed, quivering?

On a more serious note, the insolence and nerve of these people never ceases to offer up entertainment value, I’ll acceded that much…

not sure but I believe this is the article

The passage you quote, masaccio, is truly a gem:

A typical hedge fund is a private investment company that manages the funds of a limited number of wealthy individuals and institutional investors. A high minimum investment requirement, restrictions on withdrawals, and the limited audience (wealthy, “sophisticated” investors) allow hedge funds to remain unregistered and leave managers free to pursue proprietary investment strategies that would be imprudent for a more widely held mutual fund. Hedge funds use aggressive trading strategies designed to earn positive returns in all market environments, such as short sales, leverage, program trading, arbitrage, and the use of derivatives.

Where to begin?
This is the financial statement of the gated community, the Very Private Club.

And this statement has the nerve to describe the profits of speculation as something that one can ‘earn’.

The unctious, supercilious patina of oh-so-exclusive respectability would be funny, if this weren’t such a huge problem.

This is the language of the courtier, the synchophant, the ‘pleaser’.

I can’t imagine anyone in my little childhood town of engineers, orchardists, ranchers, and teachers putting one iota of regard for this kind of puffery. Those people knew that weather changes, and that you’re safer building a strong community than you are by screwing everyone else out of their money.
I’ve never yet met an orchardist or a rancher that I could ever describe as a synchophant.

dakine01 and masaccio, did either of you see that Greece has made noises about banning hedge funds from their new bond sales, after the hedgies basically drove Greece to default?

The hedgies are blathering as usual, “But we provide liquidity. Doesn’t Greece want liquidity?”

Greece, along with Merkel, is saying, “No. We don’t.”
So I suppose the next episode will be the hedgies putting a squeeze on those Greek funds.

If all the governments don’t join against these rapacious hedgies, they’ll all sink. I personally don’t expect a hedge fund to be any sort of good manager of my local water system, so in my case I’m rooting for the governments to get some spine.

Look at Island, where the people have decided to finally take the reins of their future into their own hands.

Pitchforks!

Thanks, Masaccio.

So I go to Las Vegas. Walk into a casino. Sit down at the roulette table, and proceed to lose a hundred billion dollars. The management sends over their “collection department” to whom I explain that this was an unfortunate mistake. I have nothing with which to pay off my losses, but the rest of the gamblers in the casino have plenty of money. So the collection department sees the wisdom in deep pockets. They break the legs of everyone else in the casino who’s gambling with real money, taking all of that money and taking back a trillion dollar marker for the balance owed on the defunct leveraged position.

The real economy has been sacrificed to bailout the derivative gamblers and their counter parties, leaving it broke and broken — now, and into the future.

Has to be a Taibbi piece — click on his blog.

I’d be more surprised if ‘trickle down’ hadn’t been the main economic theory in DC for at least 30 years, even though it doesn’t work (and never has).

Orwell’s Journal of Financial Stability

Your documentation confirms what I’ve held for several years now.

There is nothing on the table that addresses the illness, only temporary symptom fixes. Nothing that restores the primacy of the real economy as a basis for sustainable economic growth, just another fake wealth bubble to make the most recent crash look like it’s been cured.

The real economy can’t compete on a yield to maturity basis: 1) risk of investment capital, 2) percent return on the investment, & 3) investment term.

1) The government bails out what should be illegal imaginary wealth invention schemes, there is zero risk to the investor’s capital.

2) When these schemes employ obscene leverage where none of the players has the resources to back up their bets, the returns are astounding.

3) These “investments” are exclusively short term financial exploitation moves that have nothing to do with capital formation in support of the real economy.

As money moves back and forth between the financial economy and the government capture economy, there’s little to nothing left for Main Street.

And when 70% of the economy is predicated on consumer spending, 4th grade arithmetic indelibly confirms that this is a massive ponzi scheme.

It takes the quants on Wall Street to construct a model proving otherwise because, for their investors, this is the best of all possible worlds.

Time for a U.S. Revolution – Fifteen Reasons
by Bill Quigley

http://www.commondreams.org/view/2010/03/07-7

Hedge Funds are about 2/20 – 2% off the top goes to hedge fund management, 20% of any gains goes to management. Any loss is born only by owners of the fund, not management.

where do I sign up for that job??
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never mind I know the answer…
gotta have a fortune first and then maybe… nah no room at the top..

This link says the Maier/King paper is downloadable.

http://ideas.repec.org/p/bca/bocadp/07-9.html

And that 20% is taxed as capital gains and not income. All upside, very little downside for managers. Moral hazard *is* their business. Should be regulated.

amoral hazard is their business, and as long as the people are in a left / right pissing contest, the rug is being pulled out from under both their feet.

Brilliant!

“You can always count on Americans to do the right thing – after they’ve tried everything else.”

I’m not certain America will matter much after the public’s blissful slumber party is over.

Having a fortune is helpful for starting a hedge fund. It shows potential investors you have managed money successfully in the past, which makes it easier to get the $100M or so needed to start up (So you pocket $2M right away).

I learned a little about the industry from reading “Running Money“, an account by the manager of a technology hedge fund during the dot com era.

How a Transaction tax on all trading of all sorts of 2.5%. And all transaction must be declared to the Government… Criminal penalties.. ya know Jail Time for first time offenders.. That ought make them think about what they are doing. And non of this LLC protection crap to the person running the show. Jail Time I say Jail Time!!
Gee and if we are lucky we could get Universal Health Care for All!

The Country bought the bullshit that Wall Street was what could run the Country.

They invested in it by giving it their money.

It took that, and every other dime it could.

All those dimes are not now flowing through the Economy so the Country could prosper on thsoe dimes.

The Country and it’s people gave away the wealth of the Nation to the Money Changers, and now we are at the mercy, “If one thinks they have any mercy,” of those Money Changers.

We gave away the farm, and getting it back is near impossible.

Hi,

I am Philipp Maier, one of the authors. Thanks for reading and citing our paper – btw, of course it is available online: http://www.bankofcanada.ca/en/res/dp/2007/dp07-9.pdf – but I am a little less happy that you somewhat misrepresented what we said.

First, we do not want to regulate hedge funds, not because we think that hedge funds should have carte blanche to play with other peoples money, but because – as outlined in the paper – regulation likely will not work. Second, we do not discuss the benefits of hedge funds in detail, because that is not the main focus of our paper. Instead, we discuss whether hedge funds pose a threat to financial stability, which is not quite the same thing (and we conclude that they do not). Still, that’s not to say that we do not discuss the benefits at all – for instance, hedge funds contribute to market liquidity, as mentioned in the paper.

It is easy to criticize a paper for what it does not do…

Thanks, Philipp Maier

“What New York-based JPMorgan Chase didn’t tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn’t understand.

“That was like a sucker punch,” Barker says. “It’s not about the district and the superintendent. It’s about resources being sucked out of the classroom. If it’s happening here, it’s happening in other places.”

$12 Billion in Deals

It is. During the past four years in Pennsylvania alone, banks have pitched at least 500 deals totaling $12 billion like the one JPMorgan Chase sold to Erie, according to records on file with the state Department of Community and Economic Development. Most of the transactions — which occurred outside the state’s largest cities of Philadelphia and Pittsburgh — have been made without public bidding, which means that banks and advisers privately arranged the deals with small school districts, the records show.

JPMorgan’s Chief Executive Officer Jamie Dimon declined to say if he thought the bank’s fee disclosure was proper and whether the bank acted in a fair, responsible and moral manner in Erie.

http://firedoglake.com/2010/03/07/where-is-all-the-money-and-what-is-it-doing-for-americans/

” Voters rejected the bill because “ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers,” said President Olafur R. Grimsson, whose rejection of the bill resulted in the plebiscite, in a Bloomberg Television interview on March 5.

That’s correct.

The people didn’t cause the bankers to do the irresponsible things that led to this, just as the people in the US didn’t cause our bankers to do so.

The bankers, with superior knowledge and all their grand mathematical models, took a bet.

The bet was that they could intentionally make bad loans and intentionally fail to disclose risks, and if the bet turned out poorly the people, who did not consent to be stooges, would bail them out.

Iceland’s people have said no.

[...]

That is the beginning and end of the discussion.”

http://market-ticker.org/archives/2052-Iceland-Now-Finish-The-Job.html

As you watch the Academy Awards, think on the newest Wall Street casino from Cantor Fitzgerald: http://www.nytimes.com/reuters/2010/02/22/arts/entertainment-us-exchange-boxoffice.html

Yes, you can gamble on how much money a movie is going to make. If you are a producer who discovers he has a dog on his hands, you just short your own movie in their new Cantor Exchange. What can go wrong with this scheme?

http://www.youtube.com/watch?v=yge311sFhC8

One thing which thankfully distinguishes the left from virtually the rest of the country is its ability to face reality. This can be very discomfitting when you realize that the system you live in is corrupt through and through.

While much of the country is clueless and the right is happily cheering on the country’s demise by the systematic enabling of rapacious profiteer speculators at least we on the left can focus on the real culprits and their enablers.

Clarifying the situation which is leading to the country’s destruction is the necessary first step. People who propound and justify the unfettered theft that is going on must be confronted. Those like Obama who are wedded to the current pillaging of the country and who at most want to establish rules of the road must be denounced as weak enablers and sycophants.

The interests of the corporations must be undermined by a significant segment of the population. We need a set of strategies targeted directly against financial and corporate destruction of the country.

The problem isn’t hudge funds but rather the government bailing out Wall Street. The bailout of LTCM foreshadowed the current bailout of Wall Street now as well as encouraging Wall Street to take excessive risks and excessive leverage – Wall Street knew it had a rich uncle who would bail it out if things went south.

Do some research and the solution to the financial crisis will become crystal clear. Who runs the Federal Reserve, who runs Goldman Sachs, who benefited the most from wars in Iraq and Afghanistan. Who was behind the Bolshevik Revolution. Who attacked the USS Liberty in the 1967 War in the mideast? Watch “The Kharzarian Conspiracy” on YouTube.

The financial industry asked politicians to deregulate and let them and the free market regulate. Government did.

Now they have to pay for their destruction and government has to regulate.

The economy is crushed, so state & local governments receive less revenue and that means they can’t provide important services. People can’t make up the difference because they simply don’t have the money.

The Right and the financial industry have allowed us to all be mugged and pushed into the gutter. The Left has to straighten things out so we can at least stand up again and walk down the street to work.

Sometimes there is no higher authority to punish, else the Right wouldn’t stand a chance in any election in America for the next 30 years. But, the public is mal-informed by the Right media and they think Democrats are not so great. It’s rather bizarre and amazing and sickening.

It also shows we have a long way to go towards properly informing the public about our very modern complicated society. Thank God Al Gore invented the Internet! We can discuss everything ‘here’ :-)

Why hedge funds need to be regulated:

Anyone who considers themselves to be a sophisticated investor is deluded.

And a private individual who loses larges amounts of money has a social impact.

There has been talk in the Obama administration about taking your 401(k) and IRA savings and holding on to them until you retire.

BusinessWeek reports that the Treasury and Labor departments are asking for public comment on “the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams.”
In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.

The key point of my post is that speculation is useless and dangerous. My solution is to discourage it.

You start from the opposite premise. Your first sentence:

The rapid growth of hedge funds provides important benefits in the form of improved price discovery, liquidity, risk sharing, and diversification.

You think speculation is valuable, or you would call for its elimination. It obviously imposes huge costs on society. Since you think market efficiency and price discovery are benefits great enough to justify the costs, you do not call for its elimination or control. Your solution is to use “market discipline”, relying on counterparties to control risks.

I did not set out to discuss your solutions, other than to point out that they didn’t work, and won’t work. The idea that counterparties impose market discipline lacks empirical evidence. I think every player knew AIG was screwing up in its credit default swaps. Instead of imposing market discipline, they took advantage of their stupidity, and stuck US and other taxpayers with the costs.

Market efficiency is just one criteria for deciding what we should do as a policy matter. Some things aren’t worth it, and market efficiency is one of them. Why is, say, $2.8 trillion best used in speculation? What good is that to the millions of unemployed Americans? Do you think the people injured by economists views of the benefits of global trade are grateful for the wonderful efficiency of global markets?

I say bluntly that speculation isn’t useful. Gains from market efficiency may be great for speculators and rich people, but too often they dump all of the costs on taxpayers. Over and over we have experimented with deregulation and over and over taxpayers paid.

It’s off topic, but I think ff we imposed heavy taxes on hedge funds and their managers, put some of the money into direct regulation, and gave regulators the ability and equipment to process the data from immediate reporting, taxpayers would have a fighting chance. You say, without significant discussion, that it won’t work.

So, here’s a story. Years ago, when I was securities commissioner in Tennessee, a Business School Professor from Vanderbilt took me to lunch to discuss Blue Sky Regulation, back in the days when that involved serious control over the terms of stock offerings, such as limits on cheap stock. It also involved criminal prosecution. He explained that people would evade regulation, and that markets would correct themselves, and that I was wasting my time.

I explained that I didn’t think I could stop fraudulent deals, and that I knew I wasn’t catching all the criminals. What I did do was indict and convict people, after which a whole bunch of known cheats moved out of Tennessee. Indictments raise the opportunity cost for cheats of all kinds. Note that no market participant was held accountable for the grotesque failure of markets, and no economist was held accountable for the equally grotesque failure of their hypotheses.

Accountability and acknowledgement of failure would be better places to start than justifying the current failed system.

On a related note, Harry Markopolous gave a full hour interview a few days ago. He was the guy who warned the SEC repeatedly about the Madoff ponzi scheme. He expanded a bunch on what he’d said a year ago in testimony before Congress.

You can download the MP3 of the interview here:
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/2_Harry_M._Markopolos.html

In the case of Madoff’s “fund”, Harry found that it included Russian mafia money, offshore unreported/taxed money of European royalty etc…

So yeah, if hedge funds should even exist, they should be brought onshore and heavily regulated.

Related to this, should capital be allowed to flow freely between countries? Such things were limited and controlled until Nixon.

All I’m seeing with the free flow of capital across national boundaries is money zipping in and out of countries in “smash & grab” operations. I don’t see any economic benefit or public purpose which justifies loot&scoot operations.