Mr. Bernanke apparently keeps a copy of 1873 Wall Street classic Lombard Street, by Walter Bagehot, on his desk.
A sample….
Most men of business think—’Anyhow this system will probably last my time. It has gone on a long time, and is likely to go on still.’ But the exact point is, that it has not gone on a long time. The collection of these immense sums in one place and in few hands is perfectly new….
Does Bernanke know the whole thing is online?
“…it would be difficult for the sector to be highly disruptive to financial markets…”
…and other once-hopeful words from the opening to A Special Issue on Hedge Funds in the Banque de France’s April 2007 issue of Financial Stability Review.
Hedge funds have attracted growing attention from policy makers, financial market participants and the general public due to their rapid growth and substantial scale, their importance to banks as clients and the impact of their trading activity on global capital markets. Because of their rapid growth and the market disruptions caused by Long-Term Capital Management (LTCM) in 1998, some analysts believe that hedge funds pose systemic risks. However, this is unlikely. A thorough review of the avenues through which hedge funds could cause systemic problems indicates that, although a major disruption emanating from the hedge fund sector is possible, it would be difficult for the sector to be highly disruptive to financial markets. Post-LTCM, regulatory authorities have encouraged banks to monitor their hedge fund clients through constraints on their leverage. This has thus far proven effective, as the recent failure of Amaranth demonstrates. That failure, the largest yet, caused hardly a ripple in the wider financial markets.
more dashed hopes here
Isn’t there an old saying about getting out of the market when guys with ponytails start lecturing you about stocks?
(Warning: You might not be as financially sophisticated as Manoftruth, according to Manoftruth, but try to hang in there.)
Collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product. CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons to compensate for the added risk. CDOs serve as an important funding vehicle for portfolio investments in credit-risky fixed income assets.
THE AMARANTH GAS SCANDAL
The trader who went to lunch and never came backBy TARA PERKINS
The Toronto Globe & MailFriday, July 27, 2007 Page B1
FINANCIAL SERVICES REPORTERBrian Hunter, the Calgarian who made more than $100-million trading natural gas for Amaranth Advisors LLC before the hedge fund collapsed, fled the U.S. as Washington regulators were trying to interview him earlier this year, the chairman of the Federal Energy Regulatory Commission says.
“He was in the middle of an interview and there was a lunch break, and he never came back from lunch,” FERC chairman Joseph Kelliher said in an interview yesterday after announcing preliminary findings that Amaranth, Mr. Hunter and another trader manipulated the market over three months early last year. FERC is seeking total penalties of $291-million (U.S.).
A spokesman for Mr. Hunter said he “voluntarily flew to the U.S.A. to meet with FERC officials and give an interview. Brian ended the interview when he and his attorney became aware that the FERC had misrepresented the agenda for the discussion.”
…
The $8-billion (U.S.) hedge fund imploded in September and it’s well known that Mr. Hunter was the lead natural gas trader. FERC’s allegations also name Matthew Donohoe – believed to be an American now living in Calgary – who, FERC says, was executing the trades for Mr. Hunter.
