Archive for October 1st, 2008

Hedge Funds …next?

October 1, 2008

FT Alphaville points that hedge funds look liker the next to go. Because of poor performances and concerns over fin markets, there is an expectation that there will be huge number of redemptions.

A bloodbath which begins today. Yesterday was the final day(end of quarter) for investors in most hedge funds to file requests to redeem cash by December. Given the huge variance in perfomance, those redemptions are expected to be rather significant. Estimates vary, but most are in the hundreds of billions.

Though hedge funds have kept a lot of cash expecting this, the key question remains-  is this enough?

Citigroup analysts estimateda few weeks ago that hedge funds were holding around $600bn in cash or cash like instruments in anticipation of upcoming redemptions. That is a vast amount of money. Merrill Analysts on Monday put the figure lower, at around $184bn, but still, it’s a lot.

If hedge funds go down as well, so will go down a particular view. There was a view that in this crisis, the non-regulated entities like hedge funds have so far done well and there have been no concerns with them. However, this may not be true.

It is quite funny actually the way all these financial firms fall when they are expected to hold up. As the crisis started, there was this feeling that  it would effect commercial banks and i-banks would hold up. Not any more.

As I-banks were falling, there was this feeling that C-banks have held up as they have been under regulation. And then we saw so many falling apart and being merged. Same can be applied to Money Market Mutual Funds, the last thing you expect to fall.

And now we have this feeling for hedge funds. Few remember that it was a problem with hedge funds that started the concern at the first place. It was when BNP Paribas declared on 9 August 2007 that it can’t value its hedge funds, the crisis started.

New Zealand economy feeling the heat

October 1, 2008

Reserve Bank of New Zealand has issued 4 statements since August 21, 2008 with eac one restating – its financial system is safe and there is nothing to worry. The statement dates are:

Meanwhile on 3 Sep 2008, it has also assumed new responsibilities:

The Reserve Bank Amendment Bill (No 3) was passed today making the Reserve Bank the regulator of non-bank deposit takers. Dr Bollard said he is confident that the new legislation will provide a strong basis for confidence in the deposit-taking sector, which includes finance companies, building societies and credit unions.

The Bank’s role will be to require information from trustees of deposit takers, to develop and enforce minimum prudential and governance requirements and to administer credit rating requirements.

The impact of financial channel of coupling just getting bigger in size and scope. See this India case as well.

Assorted Links

October 1, 2008

1. WSJ Blog points to Bernanke lessons from Great Depression. It also points to problems galore for Fed

2. IEB points to biggest lesson from Great Depression as well.

3. Cowen points to best and worst case scenarios. He also points to drawback of adopting the Sweden plan of bank nationalisation for the current crisis

4. NB has a superb post on framing questions for the bailout

5. CB points how much USD 700 billion can help ease development problems. I knew it could help a bit but had underestimated the benefits.

6. Macroblog on rescues and bailouts

7. Mankiw says time to get greedy?

8. PSD Blog points to a new paper on gains from trade


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