clocker bob wrote:Hedge funds are havens for those who get insider info and make moves based on it, and they're havens for tax cheats. The real returns of hedge funds are not in the public record. They're not transparent at all, not in the sense that a mainstream trading house is.

The hedge fund players know risk inside out- they're not reckless. If they could get every investment they want from a mutual fund, they'd do so, but they can't. Hedge funds amass insane capital into a ton of leverage, and they use that to exploit small spreads in the options or futures markets, or in the currency markets. They get in and out very quickly in many cases. That's the kind of 'quick hit with a big stick' investing that mutual funds can't offer. They're not for people who want to park money and check it every three months. They're funds for predators, big game hunters.

( But even with all the illegality and stealth on their side, they can still take beatings and lose big, because there are other funds using their leverage to move markets in different directions and making bets against their bets. )

tmidgett wrote:Insider trading is not extremely common. It is relatively easy for the SEC to root it out. The people who play by the rules narc on the cheats.

business week february 6, 2006 wrote:More Heat On Hedge Funds
Regulators are probing trades by managers with inside access

As if there weren't enough controversy surrounding hedge funds, now the Securities & Exchange Commission is investigating suspicions that fund employees are engaging in insider trading.

It's not the typical heard-it-from-a-friend-at-the-company stuff, either. In the last decade hedge funds have ventured into the deepest reaches of finance. They've gone from trading stocks and bonds to making loans, participating in private placements, sitting on bankruptcy committees, and agitating for positions on corporate boards. In the process they've obtained all sorts of nonpublic information -- and regulators are worried that many have been mismanaging it at best and illegally profiting from it at worst.

The SEC, NASD, and Financial Services Authority in London have launched a flurry of probes. So far the inquiries have resulted in only a handful of insider-trading charges against hedge fund managers.

( Because it's not there?Because they can't ferret it out? Or because they are not getting the cooperation they need from an adminstration sympathetic to financial shenanigans? -CB )

But regulators expect the improper handling of insider information to be a big focus of enforcement actions in 2006. "Hedge fund assets have grown significantly, and there is a lot more competition for returns," says Scott W. Friestad, an associate director at the SEC's Enforcement Div. "In this situation people sometimes cut corners. We are devoting substantial resources to these investigations." Steve Luparello, an executive vice-president for market regulation at NASD, agrees. "Hedge funds misusing nonpublic information is a growing issue," he says.

from the PBS news hour wrote:Insider advantages?

MARGARET WARNER: So, Professor Coffee, what should Americans take away from this, if, by some accounts, more than 50 percent of adult Americans are now in the market, mostly through their retirement funds?

Back in the early '80s, from figures I saw, it was just about 20 percent. Are we or they being played for patsies in this system? Are there really just two tiers and the insiders are always favored?

JOHN COFFEE: Well, I think, of course, most insiders are honest, and I think most Wall Street investment banking firms are also honest. And I think some of these firms were the victim of this behavior. It was their confidential business information that was being stolen by these defendants, or at least allegedly stolen.

What has changed is this new actor, the hedge fund. It will trade, not in tens of thousands or hundreds of thousands of dollars, as individuals might trade. It will trade in hundreds of millions, in some occasions, not in this case, but possibly in others, and because it trades so frequently, that even if an investigator comes in and says, "Why did you do this?" You can say, "Listen, on that particular day, I traded $500 million in securities. I made 50 to 60 different bets on individual stocks. And this was this was just one of 60 bets that looked right to me."

That's very hard to break that down, whereas it's much easier if an individual, for the first time in his life, makes a $50,000 trade. So it's harder to penetrate the hedge fund that is playing tough.

WSJ wrote:[b]Volatile Markets Bring Hedge Funds Under Fire

Hedge funds had their day in Washington last week, as the Senate Judiciary Committee probed accusations of fraud and called for greater industry regulation.

The heightened interest in these large pools of private capital reflects the growing clout of the hedge-fund industry and recent volatility in financial markets, which some attribute to hyperactive hedge-fund trading.

Much of the controversy centers around short-selling -- a way of betting that a stock price will fall -- by hedge funds. Short sellers usually sell borrowed shares of a stock, in hopes that they can buy the stock back later at a lower price ...

There were a lot of dark days in 1929: Black Thursday, Black Friday, Black Monday and Black Tuesday, the last being the worst day for the stock market. But it wasn't until four years later that any securities law was passed to protect investors.

The Securities Act of 1933 was the first law enacted by Congress to regulate the securities markets. It required securities registration and disclosure. Prior to 1933, the thinking was that other civil laws governed behavior, such as fraud and manipulation, and no specific laws were needed to address the securities industry.

I know, you ponder that and scratch your head. But it seems we haven't learned a thing from history.

People are using that exact same rationale today to argue against hedge-fund regulations. Decades from now, people will be looking back on us, as we do on the Roaring '20s, scratching their heads and wondering why rules weren't in place to protect investors. The writing is on the wall, and it isn't in invisible ink: a major hedge-fund-related meltdown is coming.

A major insider-trading case involving three hedge funds and several Wall Street firms came to light last week. Other cases of hedge-fund fraud have popped up in Denver, Greenwich, Conn., and a slew of other places around the country.

And the ripple effect is global: there are an estimated 9,000 hedge funds with more than $1.4 trillion in assets. That's a pretty good number of funds -- the mutual fund industry has about the same number -- and a pretty significant amount of assets, about 20% of the total U.S. stock market value.

Yet, regulators are drumming their fingers on their desks: "What to do? What to do...?"

tmidgett wrote:Insider trading is not extremely common. It is relatively easy for the SEC to root it out. The people who play by the rules narc on the cheats.

tmidgett wrote:As for subprimes, they make up about 10% of all mortgages. A small fraction of them will ever default--mortgage defaults hinge pretty directly on the unemployment rate, which is not especially high nationally at 5%.

Michigan will have problems, with their unemployment rate at around 7%. Massachusetts and Ohio may have trouble. There aren't any other large states that are in danger of having issues with massive defaults. The big banks don't traffic in subprime loans enough to sustain any major damage from them directly.

It's a subprime panic reaction that is likely to cause problems, not defaults.

The rocket-shot rise of hedge funds and the advances in financial modeling techniques have spawned something of a competition among the so-called best and brightest to find ever-more-complex ways of skimming pennies from very large piles of money. The collective result is that our financial system has been wired up to $370 trillion dollars of privately negotiated investment contracts. They're usually written to shift risk from one bank, pension fund, insurance company or brokerage firm to another. And many are linked together in long chains, with each contract providing collateral for the next.

It's all very clever, but layering the enormous size– $370 trillion dollars, far more than the net worth of all the financial institutions in the world – on top of all that complexity is downright scary. In simpler times, a home loan going bad would affect only the particular lender. Enough defaults would put the lender out of business. And that would be the end of it. But today a wave of defaults can send a shock through the portfolios of financial institutions around the globe, including hedge funds, banks and pension funds far removed from the troubled borrowers.

Imagine an electrical circuit with thousands of connections. No one designed it. No one tested it. No one has a diagram for it. It just grew. Now, because of its size and power and pervasiveness, everything depends upon it. So what happens when one of those thousands of connections burns out? No one really knows.

That's right; no one really knows what will happen, but there is growing concern about what MIGHT happen. And, what might happen is disaster!

Casey gives an apt summary of our present predicament. There is currently $370 trillion in derivatives, hedge funds and over-leveraged marginal investments. There is no coherent relationship between this mass of cyber-wealth and actual deposits or investments. It is merely a fractional banking scam on steroids; computer-generated capital with no basis in reality. As the sub prime market comes under greater strain; hedge funds will teeter, derivatives will tremble, liquidity will dry up and the whole debt-plagued system will crash in a heap. The frantic efforts of the PPT ( plunge protection team ) with their flimsy bits of scaffolding will amount to nothing. Wall Street is quick-stepping towards the gallows and there's little hope of a reprieve.

As we watch the sub-prime market unwind; we should keep in mind that this massive expansion of credit took place on Alan Greenspan's watch and with his implicit approval. The former Fed-chief was a big fan of sub-prime mortgages and he wasn't hesitant to extol their merits. In April 2005, Greenspan said:

“Innovation has brought about a multitude of new products, such as sub-prime loans and niche credit programs for immigrants… With these advances in technology, lenders have taken advantage of credit scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers… Where once more marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in sub-prime mortgage lending… fostering constructive innovation that is both responsive to market demand and beneficial to consumers.”

“Innovation”? Is that what Maestro Greenspan calls this fiendish, economy-busting Ponzi-swindle?

Greenspan is like a jungle-monkey swinging from one massive equity bubble to the next. The housing bubble turned out to be his “piece de resistance”, a bottomless black hole sucking up the nations' wealth into its dark vortex. His “low interest” doctrine may have kept the moribund economy on life support after the dot.com bust, but it has ruined the country's prospects for the future. We'll be digging out of this mess for decades.

Greenspan nodded approvingly as trillions of dollars were funneled into shaky sub primes, but he chose to cheerlead rather than slow-down the process. He scorned the idea of government regulation preferring his own type of Darwinian “natural selection” or, rather, survival of the shrewdest. Now the pundits and the talking heads are trying to shift the blame to struggling low-income wage-slaves who thought they could live the American dream by buying a home on credit. They were seduced by the promise of cheap money and then led by the nose to the slaughter. The whole charade was orchestrated by Greenspan and his buddies in the banking cabal. They alone are responsible.

CDOs May Face `Severe' Ratings Cuts on Subprime, Moody's Says

March 27 (Bloomberg) -- Some collateralized debt obligations may face ``severe'' ratings cuts because they hold subprime mortgage bonds, according to Moody's Investors Service.

The impact of downgrades on the underlying collateral would be ``generally mild to moderate'' for those CDOs with up to average exposure ``but could be severe for the most heavily exposed transactions,'' New York-based Moody's said in a report written by John Park, a vice president and senior credit officer.

Delinquencies and defaults on subprime mortgages have surged because of slower home-price gains and looser lending standards. The year-over-year increase in December in late payments of more than 60 days, foreclosures and seized property among loans in subprime mortgage securities -- to 9.8 percent -- was the largest since September 1996, Moody's said in a report last week.

CDOs repackage loans, bonds and derivatives as new securities, some of which have higher credit ratings.

DazeyDiver wrote:I would go see a band called 'The Sub-Prime Blowout and The Con Man Exodus.'

tmidgett wrote:

clocker bob wrote:Hedge funds are havens for those who get insider info and make moves based on it, and they're havens for tax cheats. The real returns of hedge funds are not in the public record. They're not transparent at all, not in the sense that a mainstream trading house is.

Insider trading is not extremely common. It is relatively easy for the SEC to root it out. The people who play by the rules narc on the cheats.

Top hedge-fund managers earn average of US $540 million

2007/4/26
By Walter Hamilton NEW YORK, Los Angeles Times

The Masters of the Universe on Wall Street keep getting richer -- and that has some people worried.

A report released Tuesday shows that Wall Street's elite are making more money than ever, with the 25 highest-paid hedge-fund managers averaging US $540 million in compensation last year. The top three pocketed more than US$1 billion each.

Not bad. Billion a year? Man oh man, when that billion trickles down to the rest of us, this economy is going to take off like a rocket! That billion is going to translate to big-time jobs growth. How did we ever pay the lower classes anything, before we came up with the system of reducing taxes so the elites distributed all the profits for us?? CB

But the investment environment that is making these men rich (and yes, the top 25 are all men) is coming at the expense of working Americans in the form of job losses, reduced health benefits and depleted retirement savings, according to a very different study released Tuesday by a labor union.

Taken together, the studies encapsulate the two ends of today's economic spectrum in which Wall Street is enjoying transcendent profits while many rank-and-file workers feel left behind.

"You see this extraordinary accumulation of wealth in the hands of a relatively small group of people," said Stephen Lerner of the Service Employees International Union, which represents government and health care workers. "It's just not healthy for society."

The SEIU study focused on private equity funds, which buy and restructure companies in hopes of selling them at a profit. These funds are close cousins of hedge funds, which are private investment pools that pursue a wide range of investment strategies.

Increasingly the lines between the two are blurring as both tiptoe into the other's line of business, but big money has always been a shared trait.

In its annual survey of hedge fund managers, Institutional Investor's Alpha magazine found that average compensation of the top 25 jumped 57 percent from last year and 127 percent from 2004.

More proof that this economy is sound top to bottom. CB

Collectively, the managers earned more than US $14 billion. If you didn't make at least US $240 million last year, you didn't make the list.

clocker bob wrote:since I've been assured that every penny here was made within the rules, and that there's absolutely no truth to the theory that high dollar investors turn their accounts over to hedge fund managers because hedge fund managers have access to insider info and can employ trading strategies that will beat the returns available in the mainstream market.

It's a total relief that the SEC is always one step ahead of these guys.

tmidgett wrote:

clocker bob wrote:since I've been assured that every penny here was made within the rules, and that there's absolutely no truth to the theory that high dollar investors turn their accounts over to hedge fund managers because hedge fund managers have access to insider info and can employ trading strategies that will beat the returns available in the mainstream market.

It's a total relief that the SEC is always one step ahead of these guys.

That's exactly what I said. You are so fucking on target, dude.

clocker bob wrote: You made a counterargument against my posts on hedge funds. When I countered your position with a lot of mainstream business press sources, you disappeared.

Now you are back. Great. Do you think that your position on hedge funds should make my position on hedge funds evaporate, or am I allowed to have my perspective and present it? Isn't that how this works? I get my say, you get your say, I get my say?