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| User Info | The Truth About Our Financial Problems In America in forum [Ticker] | |||
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Genesis Posts: 71431 Incept: 2007-06-26 
KD^2 
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http://market-ticker.denninger.net/2008/....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 17:25:37
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Run Posts: 240 Incept: 2007-09-04 
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Can you explain this?: "This is a serious problem because with the 2 and 20 compensation system they use there is no reason for them to exist unless they can gear up 20:1 or more - their return to the client will approach that of Treasuries!" What is the 2 and 20 compensation system?
2008-03-19 17:32:15
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Eternalblue Posts: 4230 Incept: 2007-08-09 
sokali Online
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you know what is "funny", the "stable" fund in my 401K is like 1/3rd FRE and FNM mortgages, insured by wraps. ---------- my miniblog; http://economicpsychosis.blogspot.com/
2008-03-19 17:34:27
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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2% fee and 20% of all gains. Let's say you buy the S&P 500 (no gearing) You make on average 10% a year. 2% of the BALANCE goes to the managers, plus 20% of the gains. This is a problem; the math works like this: 100,000 + 10% (gain) = 110,000 2% of 110k = 2,200 20% of gain (10,000) = $2,000 Remaining funds = $105,800 = 5.8% Not much better than Treasuries, and on a tax-equivalent basis its actually WORSE than Munis if you're intelligent about how you buy them. Hedge funds without leverage have no reason to exist. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 17:35:08
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Run Posts: 240 Incept: 2007-09-04
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ah, thank you.
2008-03-19 17:37:56
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Sideler Posts: 805 Incept: 2007-11-10
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Nice Ticker. Maybe we will soon see some EX-employees from BSC or whomever blows up next, step up to the plate and tell the truth. What do they have to lose? The more carnage, the better the odds.
2008-03-19 17:41:09
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Yeah, the real ball-buster on 2-and-20 is that the 2% is charged even in losing years.
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 17:41:44
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Aynrandfan Posts: 1713 Incept: 2007-09-02
Hannah, Montana
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I should start a fund where I only take 1% of your assets in losing years. "Sure," I'd say, "I lost you a bunch of money, that's true -- but my fee for doing so is only half what the other guys charge." ---------- Mliu wrote.....I told my wife... that the depression is comming so I don't want to go to work anymore....
2008-03-19 17:55:32
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Nawal_chadha Posts: 363 Incept: 2007-06-26
New York
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Which financial institutions are likely to be affected most if this cross default begins?
2008-03-19 18:04:56
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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All of them. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 18:09:17
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Run Posts: 240 Incept: 2007-09-04
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This is an angle that I had totally been ignorant of. If I understand correctly, hedge funds are responsible for roughly half of the stock market, and if those hedge funds can't borrow enough to invest and create a return above that of other instruments (like Treasuries), then investors will pull out of hedge funds (or the capital will decrease) and the hedge fund will no longer be players in the stock market. This would eliminate about half of the market, which would cause massive drops in prices. Did I get that right?
2008-03-19 18:18:45
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Yep. And the bad news is that if you're a bank your equity (stock price) is part of your capital ratio. Thus, a "run on the stock" can in fact sink a bank. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 18:31:34
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Pinal Posts: 699 Incept: 2007-08-16
Chicago
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That's the thing that I never understood about hedge funds. I get that if they make you money, they get a lot. Some managers made billion a year on that when the going was good. But how the hell do you justify hundreds of million in fees when you are losing money for your clients? They are gambling with other people's money and making money no matter what happens to their's client's money. Sounds like just a bunch of bookies, even worse. You have to be sucker to be in hedge funds, the biggest in the world if you are in one that isn't levered.
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2008-03-19 18:33:24 by pinal
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Run Posts: 240 Incept: 2007-09-04
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Uh oh. This didn't sound to good and I don't really understand it, either: "And the bad news is that if you're a bank your equity (stock price) is part of your capital ratio." Do you mean that a bank's own stock count towards the capital that they have in the vault, so to speak? So if the value of their won stock goes down, it's as if their capital reserves in the vault go down? Oh I sure hope that's not right.
2008-03-19 18:36:03
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Nazlug Posts: 138 Incept: 2008-02-28 Suspended
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The Hedge Funds are sitting on a mix of toxic waste (CDOs, etc) and otherwise declining assets (stocks, commodities, treasuries). They are currently under enormous pressure to meet margin calls and redemption requests. They can ignore (halt) the latter, but not the former. Since they are currently facing net fund outflows, they cannot meet their margin calls by raising cash via new/existing investors, so they are forced to sell anything that has a market. This means they are selling their high quality assets. This creates downward price pressure on those assets (stocks, commodities, treasuries). The problem for them is that as their balance sheets loose the quality assets, their overall debt-to-waste ratio declines further and they get more margin calls. This cycle reinforces itself very quickly until the combination of selling and leverage completely wipes them out. The investors are now facing a 100% loss, and their creditors are stuck with the worthless assets, and have to take large write offs on the remaining, never to be repaid, margin loans. As if this isn't bad enough, J6P and soon-to-retire babyboomers are about to wake up and panic (meaning massive 401k, IRA redemption requests are coming). Stocks are going to be under massive pressure for a long time in my opinion. Any surviving capitol is going to flee to what it perceives as a "safe haven" like comoddities and treasuries. This will in my opinion, cause a general downtrend in stocks, and weird whipsaw trends in commodities and treasuries (due to very high buying and selling pressures at the same time).
2008-03-19 18:39:10
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Quote:Do you mean that a bank's own stock count towards the capital that they have in the vault, so to speak? So if the value of their won stock goes down, it's as if their capital reserves in the vault go down? Oh I sure hope that's not right. Yep. Tier Capital includes equity. So yes, you can be ****ed in the ass simply by having your stock to go near zero, if your Tier Capital ratios are low enough. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 18:42:46
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Crow Posts: 172 Incept: 2008-02-25
Canada
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The whole concept of having a world where thousand of these hedge funds can exist for a long time always seemed totally bizarre to me, kind of like real estate trading like nasdaq stocks. This whole credit bubble thing really is one for the ages. ****ing human greed.
---------- When does Keanu get here?
2008-03-19 18:43:44
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Run Posts: 240 Incept: 2007-09-04
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I'll bet that's why Ben and the boys are seemingly just trying to keep the stock market up, and let the dollar slide, because the reserves of the banks are directly correlated to the stock prices.
2008-03-19 18:45:21
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Ding ding ding ding ding ding. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 18:46:42
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Theone Posts: 6865 Incept: 2007-08-07 They crucified the only PERFECT one Banned
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Quote:because the reserves of the banks are directly correlated to the stock prices. They DON'T have any RESERVES. 
---------- Let me know when the DENIAL of who runs everything is over. Until then enjoy the circle jerk. I'm going fishing. State of the Union ---> http://www.mindspring.com/~lcruiser/Stat....
2008-03-19 18:54:16
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Meatpuddle Posts: 630 Incept: 2007-07-26
Madame Merriweather's Mudhut Malaysia
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Hey KD, ran across this little gem while trolling comments: "The feds overplayed their hand by lowering the capital requirement on Fannie and Freddie. This was a fatal error. The spreads on Fannie and Freddie debt will blow out and take down scores of hedge funds and possibly banks as well. Fannie and Freddie debt are at the very core of the financial system. They should have learned after seeing what happened to the spreads when they removed the Fannie/Freddie portfolio cap and raised the conforming mortgage limit amount. It’s game over now. " http://wallstreetexaminer.com/blogs/wint.... ---------- "the idea that you're "entitled" to a 5 or 6 percent 30 year mortgage is horse****, and so is the housing prices that it has created." - Genesis
2008-03-19 18:54:39
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Asianbull Posts: 2184 Incept: 2007-09-03
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All the debt will be monetized by the Fed at some point.
---------- The root cause of all the world's problems is inflation. The only sound money in the world is commodities.
2008-03-19 18:54:51
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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No it won't. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-03-19 18:55:58
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Sideler Posts: 805 Incept: 2007-11-10
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I would guess that is exactly what happened in commodities today. Tomorrow could be another "stellar sell-off" in that sector. What else is left?
2008-03-19 18:56:13
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Eternalblue Posts: 4230 Incept: 2007-08-09
sokali Online
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what a ****ing pyramid scheme
---------- my miniblog; http://economicpsychosis.blogspot.com/
2008-03-19 18:56:52
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