Special Report on
CDO Hedge Funds
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I guess to those who look at the blow up of a small hedge fund -- it was only $684 million in equity, albeit leveraged up 10-to-1 to $6.8 billion. Hey, sometimes, losses happen. And Wall Street has been terrific about managing risk, haven't they? I mean, they did a great job with the dot coms, and they are doing a terrific job with housing, right? There may be 49 Trillion dollars worth of derivatives -- thats trillion with a "T" -- so what if 1 or 2% goes belly up? It's well contained . Um, not exactly. There are several issues here that deserve closer scrutiny. Here's how I connect the dots: 1. Side Pockets
CDO Hedge Funds - Trends
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GloboTrends wiki for Global Business / CDO
The suspicion is that American know-how and talent made the disaster worse. Of all the financial instruments to have failed, newfangled collateralised-debt obligations (CDOs) have turned out to be among the most devastating. One way of thinking about CDOs, says Raghuram Rajan, a professor at the University of Chicago, is as a mechanism for converting mortgage securities and corporate bonds from huge, illiquid assets owned by local investors into liquid financial instruments that could be flogged across the world. Philip Lane, of Trinity College Dublin, thinks that sophisticated American financial services combined dangerously ...
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whereby "senior" tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk . A few academics, analysts and investors such as Warren Buffett and the IMF 's former chief economist Raghuram Rajan warned that CDOs, other ABSs and other derivatives spread risk and uncertainty about the value of the underlying assets more widely, rather than reduce risk through diversification. Following the onset of the 2007-2008 credit crunch , this ...
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We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging. Contact the Author: accruedint at gmail.com In a move that surprises most Australian aboriginals and some (but not all) long-term coma victims, a high-profile hedge fund focused in the sub-prime mortgage area is liquidating. Bear Stearns put about $3.8 billion in bonds out for the bid today, a little bigger than your average BWIC. According to various people I've talked to, the bonds are predominantly AAA floaters, ... Read More
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For quite some time, I’ve warned about the following risks in the market: 1. Hedge Fund Scandal 2. Housing Bubble and Subprime Fallout 3. Investment Banking Accounting 4. Leverage in the Market In one convenient New York Times article that was printed today about Bear Stearns, all four issues are conveniently addressed. The following are quotes from the article followed by my own editorial comments: 1. Hedge Fund Scandal Bear Stearns [ticker symbol BSC] told clients in its two battered hedge funds late yesterday that their investments worth an estimated $1.5B at the end of 2006, are almost entirely gone…The more conservative ...
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One of the hottest topics, when Wall Street recently saw a market turmoil, was whether hedge funds need to be more strictly regulated. As a special investment vehicle designed for large institutions and rich personal investors, hedge funds are notorious for their ruthless trading strategies aiming to reap as high absolute returns as possible, which usually came with very high risks. The financial leverages hedge funds often utilize had more or less contributed to almost every financial crisis we have faced in the last decades. Typical examples include the fall of Long Term Capital Management (LTCM) in late ...
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CDO HEDGE FUNDS
Tom Brakke, CFA, offers new criticism today on Morningstar of Target-Date Mutual Funds, despite this investment vehicle's reputation as one of the hottest investment products of the last decade. According to Brakke, many target date funds were structured based upon questionable assumptions about asset classes and how they perform over time. "Historical returns, the variability of those returns, and the correlations among the returns of different types of assets were used in asset allocation models as if they were facts of nature." Brakke says many target date funds with a reference date of 2010 have received ...
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US online spending picked up late in the Holiday Season, bringing the year-on-year growth rate close to the pace for the rest of the year, according to the latest figures from comScore. Nearly $28 billion was spent online from Nov 1 to Dec 27, marking a 19% gain versus the corresponding days last year. This compares with a 20% growth rate during January-October. ComScore had forecast spending for the full Holiday Season (Nov 1-Dec 31) to reach $29.5 billion, a 20% increase from last year. During the core holiday shopping period between Thanksgiving and Christmas, online sales grew by 21% versus year ago, a full 2% percentage ...
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RELATED NEWS
A ProPublica analysis shows for the first time the extent to which banks -- primarily Merrill Lynch, but also Citigroup, UBS and others -- bought their own products and cranked up an assembly line that otherwise should have flagged. The products they were buying and selling were at the heart of the 2008 meltdown -- collections of mortgage bonds known as collateralized debt obligations, or CDOs. As the housing boom began to slow in mid-2006, investors became skittish about the riskier parts of those investments. So the banks created -- and ultimately provided most of the money for -- new CDOs. Those new CDOs bought the ...
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Can you explain the credit crunch? Simply and succinctly? I have been described as someone who “makes finance funny”, but that is mainly because I run my home as a business and refer to my children as Cost Centres. Audiences in Edinburgh were told I’d talk about the recession in my show, but the truth is that it is tough to have a recessionary focus when you are performing in the Aga showroom, a venue that sells cookers which start at £4,995. I have touched on hedge funds, bonuses and SME lending targets, all of which I do very little to explain. But explaining things is tough when audiences vary wildly in their understanding. ...
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INFORMATION RESOURCES
Y June—August 2007: Bear Stearns CDO hedge funds collapse. Two Bear. Stearns hedge funds reported in June 2007 that the continued slump in ...
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— The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio ...
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The available data show a remarkable diversity of management styles under the "hedge fund" banner. Hedge funds are major participants in the so-called shadow banking system, which runs parallel to the more standard banking system. Hedge funds have the ability to short sell assets, which allows them to use leverage, and leverage means that their equity value, absent limited liability, can go negative. Hedge funds add value to the financial system in a number of ways: (i) by providing liquidity to the market; (ii) by correcting fundamental mispricing in the market; (iii) through their trading, by increasing price ...
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Banks will lend the Loan to the high risky brrowers at the prime rate get higher rate of interest. Most of these brrowers will be having low credit worthiness. Banks will under go securtisation process and issue CDO (Commercialized debt obligation) and RMS . These product will trade like shares . when the underlying assets of these loan fell down (because of IT recession and iraq War ), value of CDO and RMS got affected. US raied the interst rate of the loan. subprime crisis has happened as the brrowers defaulted the payment of loan and interst payments to the banks. In these products hedge funds has invested , when the value of ...
