Globe and Mail- The Great Unwind continues to rip through the financial world like my snow blower through the drifts in my driveway last weekend and the hedge fund world is the latest place where the damage is piling up.
When I was in B-school, on the first day in second-year Finance class, our professor asked us if anyone knew what margin was. Having had a very recent brush myself with the dark side of leverage – been there, done that, took the haircut, in fact – I quickly raised my hand. The professor nodded at me, and I answered: "Margin is when your broker calls you and gives you 24 hours to come up with more money or he’ll sell you out." That’s pretty much what’s happening these days in credit markets.
Banks need to raise capital to absorb some of their off-balance-sheet follies, and since there is no bid for the really sweaty stuff and even high-grade loans and debt securitizations are selling at 80 cents on the dollar, it’s way easier for them to squeeze hedgies and private equity Geckos by raising margin requirements.
