Sunday, October 19, 2008

Hedge funds "A Con" - official

Frem David Wighton: Times Business Editor

"Hedge fund managers are paranoid. And they are right to be. The other day I had lunch with a senior financial official whose view of hedge funds was simple. “They were a con. The returns were all due to leverage. And now that the leverage has gone everyone will see they were a con.”

You may disagree with this analysis. You may be convinced that for some hedge funds at least the returns were down to skill. You may argue that their role in the credit crisis has been at worst neutral. But you cannot deny it is pretty worrying for hedge funds when this is the view of a top regulator.

And my lunch companion is not alone. According to an e-mail from Dick Fuld, the former chairman of Lehman Brothers, quoted by The Wall Street Journal, Hank Paulson, the US Treasury Secretary, said he wanted to “kill” the bad hedge funds and “heavily regulate the rest”. The Italian Finance Minister has promised to put the extermination of hedge funds on the international agenda when Italy takes over presidency of the G8 in January.

The bankers are all blaming the hedge funds. Even John Mack, chief executive of Morgan Stanley, which has made a fortune out of hedge funds, blamed hedge funds shorting the stock for bringing the bank to the brink a couple of weeks ago".

"A con". That is short for a confidence trick. Which is against the law. In which case the contracts that they are tied up in are invalid. So, the IMR/World Banks should call them in and examine them. It will be a good job-creation scheme for redundant bank staff.

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