

Why Are Hedge Funds Not Blowing Up All Over the Place? - robg
http://freakonomics.blogs.nytimes.com/2008/10/23/why-are-hedge-funds-not-blowing-up-all-over-the-place/

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nostrademons
Just wait. I have a few friends at hedge funds that are _very_ worried about
their job security. The layoffs have already begun; I think we'll see some
major hedge fund blowups within the next quarter.

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Dilpil
Read the note at the bottom.

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Caligula
A few reasons I could guess,

Lots of hedge funds are commission based so if they lost money, they get
nothing. With so much action in the market lately with such large swings, why
not take some chances. Worst case you lose more, in which case it will effect
you the same as liquidating would. Best case you make money.

Plus I imagine many managers are like gambling addicts. They see a lot of
possible good gambles and want to take a shot. All the better with the current
risk/reward formula.

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ntoshev
In theory hedge funds are supposed to make money regardless of the market
direction. In practice, they need liquidity to do so, which is why the current
crisis should be pretty bad for them.

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vaksel
they probably are, they just aren't letting the public know about it. So that
they can close quietly without the panic

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fallentimes
Someone had to be on the other side of the banks' trades.

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nostrademons
Not anymore. ;-)

(When the counterparty goes bust, they've gotta collect what they're owed in
bankruptcy court. Even if they were on the winning end of the trade, there's
no guarantee that they'll get cash out of it. And in the meantime, the sudden
disappearance of their trading partner means that some of their trades are
likely dangerously unhedged.)

