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Tim,
Thank you for your (as usual) insightful response. And, yes, I do
happen to have a few questions.
First, let me see if I'm correctly understanding the situation:
(1) The brokerage firms who loaned Long Term Capital money to prevent a
margin call now own 90% of the Hedge Fund. These loans were backed by
various Banks who are being tacitly backed by the Federal government who
is being backed by the taxpayer.
(2) Hedge Fund investors have now lost 90% of their equity.
(3) The brokerage firms who now own 90% of LTC are now invested in a
situation almost as highly-leveraged as what existed prior to the loans.
If this is true, what happens if/when this House of Cards begins to
collapse? Do the brokerage firms then go to the Banks who then go to
the Federal Government who then goes to the Taxpayer for yet another
Savings-and-Loan-type Bail Out?
What does the Federal Government do? Do they, under massive negative
public pressure, back away from their tacit support of the Bank loans?
If so, do we have a potential Bank collapse on our hands?
Do we face the prospect of an OTC market collapse due to contractual
payment obligations being broken by bankrupt brokerage firms?
How does all of this effect already-weakened foreign economies and what
effect does that then have on our own economy?
What, if anything, can Alan Greenspan do to keep such a downward spiral
from accelerating out of control?
Are there other Hedge Funds beside LTC who have gone through (or are
close to going through) the same scenario? If so, who and how many and
just what is our total potential exposure?
Did you *really* mean it when you said, "there are no regulations or it
isn't clear which agency has jurisdiction"...or were you just being
facetious?
Is there reason for concern? Is it Trailing Ticks I'm hearing or "Tick,
tick, tick, tick,...,BOOM"?
Dave
Timothy Morge <tmorge@xxxxxxxxxxxxxxx> wrote:
>
> Dave:
>
> One of the problems with these matters is that in many circumstances, there are
> no regulations or it isn't clear which agency has jurisdiction. These funds
> often don't get attention until they are on fire.
>
> I spent a good deal of time running what was essentially a hedge fund and then
> managed an off-shore fund. The reason funds like this are attractive is because
> they are basically unregulated. I can't speak about the LT fund that has
> basically become illiquid, but I know many of the managers of such funds. I have
> watched a few friends that were really savvy traders turn a wonderful fund into
> an empty shell that ended in litigation.
>
> Someone posted here that the managers of such funds were indemnified from
> prosecution--I would say this is not generally true. There are always ways to
> get to the managers, and in the past five years, many managers have found
> themselves staring down the uncomfortable hand that held out a subpoena.
>
> I personally have been passing on opportunites to manage off-shore capital,
> other than my own, because of the litigious environment.
>
> I hope that answers some questions. If you have some specific questions, I'll
> try to answer them if I can.
>
> Best,
>
> Tim Morge
> David L. Miller wrote:
> >
> > Stewart Taylor wrote:
> > > <snip>
> > > As far as Im concerned, these kinds of behaviors should be considered
> > > criminal and the principles prosecuted under RICO. You can't convince me
> > > that the vast majority of these guys don't know better. Ive been around to
> > > many of them to believe otherwise.
> > >
> >
> > Excellent post, Stewart. But who says these kinds of behaviors
> > ["Leverage x 50 - 100 - 200 times"] aren't criminal?
> >
> > If such behaviors are not criminal, then I would think those in charge
> > of regulating such matters are themselves guilty of (at the very least)
> > criminal negligence.
> >
> > My God...it's like the insurance company telling me it's ok to store
> > 50-gallon gas cans next to my wood stove. Anything wrong with with that
> > picture? I mean, what are we talking here...Sheer Stupidity, Pure
> > Ignorance, or Criminal Negligence? It *HAS* to be one of the three.
> >
> > In either case (Hedge Fund or Hedge Fund Regulators), your idea of
> > possibly prosecuting those responsible under the RICO statutes deserves
> > serious consideration. Sounds to me like another Savings and Loan
> > fiasco in the making...this one carrying the potential of being several
> > orders of magnitude worse given a global economy teetering on the brink
> > of recession.
> >
> > If anyone on this List could address some of the questions which Stewart
> > has so appropriately raised, I'm sure there would be many of us very
> > interested in hearing what you would be willing to offer.
> >
> > Is this a matter for Congress to look into? If so, I'd much rather see
> > them spending time on these types of matters than poking their
> > collective noses into The Mis-adventures of Little Willie (which Hillary
> > could resolve at anytime..."They Found WHAT on the White House Lawn???"
> > :-)
> >
> > Dave
>
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