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Business week – The idea certainly seemed all right to throngs of Americans who were outraged by news that American International Group (AIG) paid out millions of dollars in executive bonuses after it was rescued with taxpayer cash.
But would no bailout be even worse? Financial analysts and federal officials have warned that doing nothing to save AIG—or banks or the auto industry—would be a catastrophe, an economic domino effect of bank losses, stock market chaos, and job cuts. No one—at least no one in the government—has the stomach for that.
Forbes – The investment banks and global hedge funds that are the usual buyers of debt and equity in struggling Asian companies have largely fled the market, leaving the distressed asset space to home-grown investors.
Local players with the cash — and the stomach — to remain in the hunt for cheap assets find themselves with the luxuries of time, choice and pricing power.
"We’re just taking our time and doing our homework, because a lot of the traditional buyers are not in the market," said Chris Gradel, managing partner at Hong Kong-based Pacific Alliance Group, which runs $1.6 billion in hedge funds.
Globe and Mail – Daniel Gross, writing on Slate, makes an interesting point about the latest version of the U.S. government’s bailout plan: The plan, officially known as the Emergency Economic Stabilization Act of 2008, looks a lot like the prospectus for a hedge fund.
“In the past, hedge funds – secretive pools of capital – were open only to qualified (read: rich) investors,” he said. “But with the stroke of a pen, President Bush will soon make all American citizens investors in the world’s biggest fund – and a democratic one at that.”
Hedge funds often use leverage, or borrowed money, to amplify their returns and often use the money to buy beaten up assets. Similarly, the bailout plan, which Mr. Gross dubs the Universal Hedge Fund, will use $750-billion (U.S.) of borrowed money to buy distressed assets. But the similarities don’t end there. The manager of the Universal Hedge Fund can hold bonds to maturity or flip them for a profit. The manager can also bring in outside expertise, making the fund look like a fund of funds.
“Like many of today’s sharpest hedge funds, the Universal Fund will also have the ability to drive a harder bargain by demanding equity stakes, or new debt securities, from the institutions it is helping,” Mr. Gross said.
