Are Hedge funds destroying the economy?

[Art G]

Giant hedge funds and their greed and lack of government regulations against such are destroying the market. What should be done to eliminate them? Discuss.....

 

[NW-Bound]

Nah. They lost mucho money. Well, some may make money, and those are the ones the media talks about. I have read plenty of articles pointing out that the rich who invest with hedge funds would be better off with mutual funds, like us pedestrians.

I don't know if there is published statistics on the total gain/loss of hedge fund industry. It would be interesting.

 

[Art G]

I think there is much about hedge funds that you are not aware of. Let's see if the brewster will chime in.

 

[Abreutime]

Giant hedge funds and their greed and lack of government regulations against such are destroying the market. What should be done to eliminate them? Discuss.....

Care to elaborate on how they are "destroying the market," and why that means they should be "eliminated?"

 

[Texas Proud]

Hmmm... hedge funds are 'destroying the market'

HOW


And what about the biggest hedge funds The treasuries of all the countries? What do you think happens when they 'prop up the dollar' or the yen or whatever else they want to prop up?


One thing I always rememeber... there are two sides to every transaction...

 

[Art G]

Sure, but I'm gonna wait for brewer first.

 

[ladelfina]

Fun while you wait:
http://www.crooksandliars.com/2008/...eo-bush-says-wall-st-got-drunk-now-hung-over/

The MBA president says right out: Wall Street should "not try to do all these fancy financial instruments"!

So jes' quit doin' 'em.. take an Alky-Seltzer and git to work!

 

[harley]

Giant hedge funds and their greed and lack of government regulations against such are destroying the market. What should be done to eliminate them? Discuss.....

Stupid people, government regulations, and greedy corporations are destroying the country. What should be done to eliminate them? Discuss without any facts to back up my assertions....

 

[FinanceDude]

Brewer is too smart to get involved in this thread.........

 

[Art G]

yeah, smart. That's the word I was thinking of.

 

[brewer12345]

Brewer is too smart to get involved in this thread.........

Dunno about smart, but I do have ArtG on ignore.

 

[FinanceDude]

dunno about smart, but i do have artg on ignore.

:d:d:d:d:d

 

[Art G]

LOL! Yeah, that's how he knew FD was responding to my post mentioning him. Nice try though. Cover thy tracks.

 

[73ss454]

Hey Art, it still shows you posted just not what you said. Easy for Brewer to see what's going on even with you on ignore.

 

[Art G]

ok. I guess we won't be getting an answer from him then.
In a nutshell, large hedge funds (or small ones for that matter) are entitled to naked short stock just like a brokerage would. It's very easy to take down a company when you're not so tightly restricted on covering your position. Since there are hedge funds so large that they are able to manipulate an individual company, they can and do potentially destroy the value of that company.
I believe much of the recovery you've seen in bank stocks recently were merely the beginning of covering by these giant hedge funds. Of course, when taking a stock price down, it's not unlikely that others who own the stock have also already dumped their position, thus causing in effect the destruction of an industry.
Hedge funds and the dropping of the uptick rule only served to assist those looking to short stocks. I've yet to find any logical advantage to removing the uptick.
That's it in a nutshell.

 

[73ss454]

What's the old saying Art, buyer beware.

 

[FinanceDude]

What's the old saying Art, buyer beware.

In all things...........

 

[ladelfina]

http://www.bloomberg.com/apps/news?pid=20601069&sid=aY30IWSXGovw&refer=fedwatch

Now they want hedge funds to sustain the banks..
I remember writing elsewhere "we are all LTCM now".. this may show the truth of that.

The Federal Reserve, looking to spur investment in lenders hit by credit-market losses, is weighing three measures to ease rules for private-equity funds that buy bank stakes, people with knowledge of the deliberations said.

One proposal would permit buyout firms to use ``silo'' funds walled off from their other investments to buy the stakes without subjecting the rest of their holdings to more federal oversight, said the people, who declined to be named because the talks aren't public. Under another scenario, the Fed would let private equity firms exercise more control of banks they invest in. A third plan would encourage firms to team up on bank deals.

..
The Fed subjects private equity firms to more oversight when they exceed a 9.9 percent voting stake in a bank. If they buy more, they may be deemed to have a ``controlling influence'' and be classified as a bank holding company, which triggers restrictions on non-banking activities and the amount of debt they can take on. To avoid that classification, investors may agree to be passive, which can mean limits on board representation.

The Fed is considering liberalizing the control guidelines, the people with knowledge of the deliberations said. That may allow buyout funds to amass up to 24.9 percent of a bank while also taking a more active role and getting board seats.

Buyout funds typically rely on debt funding to make acquisitions and invest in multiple companies, often in a variety of industries. The firms typically hold numerous stakes in a single fund.

Clubs, Orphans

Under the proposed silo structure, the buyout firm would ``orphan'' the bank investment by limiting its ties to other investments or funds, the people said. This could be done by eliminating any lending or cross-investment among the funds and preventing asset transfers between them, they said.

Another proposed plan would make it easier for a group of private equity firms to invest together in a so-called club deal without triggering bank-holding rules. The firms would collectively buy stakes in a bank and the Fed would agree to treat each firm's investment independently instead of aggregating their holdings to calculate control.

 

[Hamlet]

How does causing a decline in a industry's stock prices "destroy" it?

Other than affecting its ability to raise new capital by selling stock, a company's stock price has very little effect on its business. If business is good and the stock is too cheap, its a pretty good bet that someone will buy the stock and push the price up, putting the hedge fund in a world of hurt.

It might even be another hedge fund that does it.

Of course, when taking a stock price down, it's not unlikely that others who own the stock have also already dumped their position, thus causing in effect the destruction of an industry.
Hedge funds and the dropping of the uptick rule only served to assist those looking to short stocks. I've yet to find any logical advantage to removing the uptick.

 

[Art G]

How does causing a decline in a industry's stock prices "destroy" it?

Other than affecting its ability to raise new capital by selling stock, a company's stock price has very little effect on its business. If business is good and the stock is too cheap, its a pretty good bet that someone will buy the stock and push the price up, putting the hedge fund in a world of hurt.

It might even be another hedge fund that does it.

Well besides the fact that it's a complete manipulation of the market and causes the average investor to lose confidence in not only the stock market, but the economy as well; taking a stock down to a reasonable price is one thing, but destroying them is another. Let's use FNM as a good example.....do you not think naked shorting of this stock to....oh say....$2 might cause a concern?
These massive hedge funds are making certain people incredibly wealthy at the expense of many, many others.
Assume you own a restaurant and I patronize it every day, but I never pay my check....

 

[CitricAcid]

Well besides the fact that it's a complete manipulation of the market and causes the average investor to lose confidence in not only the stock market, but the economy as well; taking a stock down to a reasonable price is one thing, but destroying them is another. Let's use FNM as a good example.....do you not think naked shorting of this stock to....oh say....$2 might cause a concern?
These massive hedge funds are making certain people incredibly wealthy at the expense of many, many others.
Assume you own a restaurant and I patronize it every day, but I never pay my check....

This has some merit of truth to it, but if the company continues to post earnings after earnings with solid dividends and revenue growth, I see no reason why a hedge fund would be able to take it to the ground. I feel that the mass of investors who find the good deals outweigh the hedge funds, who do have SOME pricing power, but not to overweigh the key fundamentals of a company.

Also, I feel it adds more confidence to many in the stock market... just start shorting instead of going long!

 

[Hamlet]

I don't think of short selling as manipulating the market any more than I think buying a stock is.

People can do the same thing on the long side, buying a stock at any price, driving it irrationally high. That can be just as damaging when prices come back down to earth. Nobody complains about the hedge funds manipulating the market by driving the price up, though.

Well besides the fact that it's a complete manipulation of the market and causes the average investor to lose confidence in not only the stock market, but the economy as well; taking a stock down to a reasonable price is one thing, but destroying them is another. Let's use FNM as a good example.....do you not think naked shorting of this stock to....oh say....$2 might cause a concern?
These massive hedge funds are making certain people incredibly wealthy at the expense of many, many others.
Assume you own a restaurant and I patronize it every day, but I never pay my check....

 

[Art G]

Hamlet, I believe you're confusing the issue of shorting a stock vs. naked shorting a stock. The problem isn't with the shorting, it's with the lack or rules for hedge funds. Let's look at the other side, assume for a second they could buy a stock without ever having to pay for it. Don't you think the share price would rise? Would this distress you at all?

 

[MichaelB]

Hamlet, I believe you're confusing the issue of shorting a stock vs. naked shorting a stock. The problem isn't with the shorting, it's with the lack or rules for hedge funds. Let's look at the other side, assume for a second they could buy a stock without ever having to pay for it. Don't you think the share price would rise? Would this distress you at all?

As soon as another hedge fund or investment house determined this was happening they would be free to implement a counter-strategy.

Short selling may cause some problems, but the lack of short selling causes more. As to rules, the problem to enforce the ones that already exist.

 

[Art G]

Again, there is a whole different story between shorting a stock vs. naked shorting a stock. The whole naked short issue was allowed by brokerages in order to make a more liquid and efficient market. Hedge funds have totally manipulated that rule for their own benefit, and humongous hedge funds have used the rule to create one sided trading. The uptick rule was at least in place to try and control drastic price falls, the lifting of that rule creates an open window for those same funds to do as they please.
Give it time, you all will understand what I'm saying soon enough.