What's a Hedge Fund???

[casstony]

Originally Posted by AstralTraveller

But are they Bert? Morally - yes of course. But legally?? Did they break laws?

I don't know about particular hedge funds, but the boom and consequent mess we're in now is of greater severity due to fraud permeating the financial system.

Banks in the US gave loans to every man and his dog, knowing that the loans could never be repaid in many cases, intentionally falsifying the loan documentation to make the borrowers fit the loan requirements. If loan officers didn't meet quotas for loans made they were sacked; if loan officers complained about lack of proper documentation they were sacked. The rule was pump the loans out, bundle them into an investment to sell to the local council(or some other silly sod), which then gave the bank the necessary capital to make more bad loans without proper documentation.

That's just one section of the industry but everyone was playing the same games, including the rating agencies. All of it made possible by government removing restrictions on the kinds of loans/investments the banks could make.

Most people don't realise how dangerous unregulated banks are - they can literally bring down civilisations by destroying financial systems.

[wavelandscott (Scott)]

Originally Posted by casstony

I don't know about particular hedge funds, but the boom and consequent mess we're in now is of greater severity due to fraud permeating the financial system.

Banks in the US gave loans to every man and his dog, knowing that the loans could never be repaid in many cases, intentionally falsifying the loan documentation to make the borrowers fit the loan requirements. If loan officers didn't meet quotas for loans made they were sacked; if loan officers complained about lack of proper documentation they were sacked. The rule was pump the loans out, bundle them into an investment to sell to the local council(or some other silly sod), which then gave the bank the necessary capital to make more bad loans without proper documentation.

That's just one section of the industry but everyone was playing the same games, including the rating agencies. All of it made possible by government removing restrictions on the kinds of loans/investments the banks could make.

Most people don't realise how dangerous unregulated banks are - they can literally bring down civilisations by destroying financial systems.

It is only a problem if the price of collateral (in this case a home) declines...if it goes up things look fine. Wealth accumulation through property appreciation has been a popular thing for a long time and in recent memory pretty full proof (until now).

While no doubt there were some suspicious "qualifications" for loans, do note the the reduction in amount needed for down payments (% down) and documentation were reduced largely at the behest of the US Congress who were very strong advocates that everyone "had a right" to be a home owner (Fannie and Freddie). The US tax code supported this by also making interest payments on house loans deductable for income taxes...being "house poor" was a great way to reduce your taxes!

Under these twin banners (right to own and easy documentation) a lot of loans were written that should not have been.

A lot of people associate what happened to a con or being morally wrong...I'm not so sure that I agree entirely with that way of thinking. No doubt in my mind that greed did play a factor but I do not think there was an evil intent to wreck anything. I do think the "risk/reward" equation got out of balance and that was likely due to the softening of regulatory oversight that occurred in the Clinton years.

Like all cycles we will get through this all eventually and it will all come good. Birth, growth, maturity, death...followed by birth etc. etc. will come again just got to wade through the debris and get ready for the next re-birth.

[Nesti (Mark)]

Originally Posted by AstralTraveller

Perhaps there should be a blanket law that limits trading to only methods that are specifically allowed. Any proposed new 'instrument' would have to gain approval before it can be used. This would stop the regulators from always having to play catch-up.

Of course such regulation would have to be international; agreed on and inplemented by all the worlds major economies (at least). After Copenhagen I think it is easy to see the probability of that happening. IMHO this just shows up the problems with national governance of issues with an international scope.

Yeah, that's the logical approach, BUT (and it's a big 'but'), too much regulation actually creates 'Moral Hazard'.

We actually need less regulation and assist the emergence of independent private monitor 'WatchDog' entities who make money by pointing out the pit-falls in their specific discipline. When Government became too big, we started relying on the mechanisms put in place...but big wheels turn slowly and legislation so tardy that loop-holes are thought-up, acted upon and exploited for years before government have time to assess, understand and react.


BTW, Max Keiser Report is a cracker...again!

[Nesti (Mark)]

Originally Posted by casstony

Banks in the US gave loans to every man and his dog, knowing that the loans could never be repaid in many cases, intentionally falsifying the loan documentation to make the borrowers fit the loan requirements.

Oh, I'll go you one better! Not only did they bundle-up good, bad and toxic loans into packages (CDO's) and sell them to Pension Funds as AAA rated assets, they then placed bets that the asset would unwind and bring down the Pension Fund...and then they were there in the wing, waiting to pick-up the Pension Fund at rock bottom price and re-bundled the toxic assets back up into new Toxic CDO Bombs for the next lot of blind Pension Funds.

We don't need regulation, we need Capital Punishment.

Originally Posted by casstony

Most people don't realise how dangerous unregulated banks are - they can literally bring down civilisations by destroying financial systems.

But these banks were regulated...and the banks bribed the regulators.
Warren Buffett's regulating agency 'Moody's' miss-assessed 42,000 AAA assessments over a 5 year period, and 80%-90% failure rate...no, they were on-the-take. And this was/is a Government certified rating agency.
(watch Keiser here at 2:40 onwards).


BTW: CDO's (Colateralized Debt Obligations) are attractive because an entity which holds a group of mortgages bundled-up into a CDO, stands to recoup more on interest repayments from the mortgages, than what interest would pay sitting in a bank. The problem is-is that not only did the housing market decline, which caused home owners to default on payments [into the CDO], but people who could never have repaid the loans defaulted immediately too. Then the CDO becomes worthless as all the Debt Obligations within the CDO are tied together. When the stock market collapsed, the large banks were caught-out with huge amounts of these CDO's on their books (not sold as yet, or they were actually trading them amongst each other ) they threatened to take down the bank and collapse the entire system...so the [US] government was black-mailed to bail-out the banks and then offered a TARP Fund (Toxic Asset Relief Program)...to many banks which were screwing-over people using them in the first place and happened to get caught with the rubber chicken. And that's just one of dozens of financial tools that are toxic.

If you wrote a book or made a movie about it 10 years ago, you'd be a laughing-stock and locked-up.

[casstony]

Scott, I think you're being way too generous. The big US banks sought profit by any means, including breaking the law where they thought they could get away with it.

[casstony]

Originally Posted by Nesti

Oh, I'll go you one better! Not only did they bundle-up good, bad and toxic loans into packages (CDO's) and sell them to Pension Funds as AAA rated assets, they then placed bets that the asset would unwind and bring down the Pension Fund...and then they were there in the wing, waiting to pick-up the Pension Fund at rock bottom price and re-bundled the toxic assets back up into new Toxic CDO Bombs for the next lot of blind Pension Funds.

We don't need regulation, we need Capital Punishment.
.

I once thought the banks were just a convenient whipping boy for everyone to whinge about, but it has become obvious they can turn evil if not kept on a tight leash. Given the entanglements between politics and the big financial institutions one wonders if we'll ever see prosecutions of the elite.... sets a terrible example for us commoners if they aren't punished.

I'm sure our banks would have behaved just as badly if they'd been given the chance.

[PeterM]

Just another way to make money out of thin air.
Sooner or later we will all pay for this unsustainable, moronic monetary system that has us all entagled in.
PeterM.

[renormalised (Carl)]

Hedge Fund???....that's where criminals keep much of their ill gotten gains. Under a hedge

Buried in sealed containers

[avandonk]

Tell me Nesti if it was not a con. Why were the CDS's worth more than the entire globes worth by a factor of three or more.

This was meant to be the most foolproof investment (scam) guarantee. I am afraid that the so called Masters of the Universe are at best deluded at worst just your ordinary criminals.

The worst thing is they are stll doing it with YOUR money.

What the f--- has a Scot sword got to do with the current discussion. Is it some subliminal symbol? And what is so funny about ordinary people being robbed by these charletans?

Maybe we are both on the same side.




Bert

[Nesti (Mark)]

Originally Posted by avandonk

Tell me Nesti if it was not a con. Why were the CDF's worth more than the entire globes worth by a factor of three or more.

This was meant to be the most foolproof investment (scam) guarantee. I am afraid that the so called Masters of the Universe are at best deluded at worst just your ordinary criminals.

The worst thing is they are stll doing it with YOUR money.

What the f--- has a Scot sword got to do with the current discussion. Is it some subliminal symbol? And what is so funny about ordinary people being robbed by these charletans?

Maybe we are both on the same side.

Bert

Bert, we're on the same side mate...and the crack about the Claymore was in response to your scathing attack on the current system...I likened your verbal wrath to the sword itself, where it might as well be a baseball bat.

BTW, I'm not aware of the CDF size but I know the entire derivatives market (including CFD's) is 10 times global GDP...and toxic.

[avandonk]

Sorry Nesti for misinterpreting you. I thought I was rather restrained under the circumstances.

Bert

[AstralTraveller (David)]

Originally Posted by Nesti

We don't need regulation, we need Capital Punishment.
.

I'm basically opposed to capital punishment but it does strike me that the only country I know of that uses capital punishment for 'white collar' crimes is China. I'm sure I have a lot of issues with their justice system - as I do with ours - but at least you have to say it's consistent to apply this punishment to those who have administratively caused death or great pain to thousands or millions of people, just as it is applied to those who have directly killed or harmed just one or two people.

Personally I wouldn't inflict capital punishment on these bankers. I'd strip their assets and make them live out their lives on the poverty line while unblocking sewerage pipes for a living. I'd even consider tattooing 'banker' on their forehead but they would probably just change the 'b' to make it something more socially acceptable.