Friday, October 17, 2008

Hedge Fund Chat

Earlier today, the manager of a hedge fund talked to our economic department.

He talked about how crazy things were, and how the businesses were
being wiped out by lack of credit. You have to be able to borrow
money to make investments, and when you cannot borrow, it is
impossible to do anything. Even if you have an almost-guaranteed
profit from investing in a business, you cannot do it. Banks are
forcing them to repay their loans immediately, which means that they
have to keep selling all of their assets to stay solvent. This drives
prices down, and makes the whole cycle worse. Even I knew most of
this already, but it was good to hear an insider's perspective.

Hedge funds have special contracts; investors are only alloweed to
withdraw money on certain dates. And when investors start to pull
out, they will go bankrupt and/or be forced to sell off all of their
assets. The big date to watch out for is November 15; he predicted
that a large percentage of the hedge fund industry, including his own
company, will disappear that day or shortly after. That will cause
bad things to happen in all kinds of financial markets.

He also mentioned the gallows humor that sets in on a Friday afternoon
after losing money all week. The joke going around the banking
industry is that "The last two weeks have killed more Jews than

After the meeting, he went to meet the dean of the college about
something. We speculated that he was asking for a job.

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