Will Hedge Fund Collapse Burst The Bubble?
A post related to Alan Greenspans testimony brought this matter up via a reader. "Norshield Financial Group shocked investors yesterday by suspending redemptions on its core hedge fund product."
"The liquidity crisis could not come at a worse time for the struggling hedge fund industry, observers said. While some futures contracts may be unwound quickly, it may take several weeks to divest long-short positions, the company said."
The Fed Chief views these cowboys as the systems savior. "Greenspan praised hedge funds, private capital pools of rich investors and financial institutions that are able to invest in almost anything, as being increasingly valuable in U.S. financial markets."
"'Their willingness to take short positions can act as an antidote to the sometimes-excessive enthusiasm of long-only investors,' he said. The Fed recently held interviews with leading market participants, including Fannie Mae, Freddie Mac, and six leading derivatives dealers to gauge risks." Want to bet one of those six is AIG?
"In particular, the Fed worries what would happen if a large dealer suddenly had to exit the market." The housing bust is more likely to be preceded by a hedge fund/derivatives debaucle than consumer's coming to their senses.