New York Daily News – The news last week about Bear Stearns’ struggles to save two of its hedge funds from collapse should serve as a reminder of the hedge fund meltdown that made headlines almostnine years ago – and urge us to get a handle on this volatile and potentially problematic piece of the financial sector.
The big news in September 1998 was that Long Term Capital Management, the giant hedge fund chartered on the Cayman Islands, had collapsed, threatening to inflict huge losses on major U.S. banks. Although the banks were eventually saved when the Federal Reserve Bank of New York organized a $3.65 billion bailout, one lesson to be learned was clear: Markets, like the hedge fund market, that are unsupervised and conduct business in secret, in tax havens, will eventually cause serious problems.
But memories are short.
In the years since, hedge fund investments have mushroomed to $1.5 trillion to $2 trillion. Once the province of the rich and super-rich, hedge funds now cast a much wider net. Funds of funds (investment companies that invest in hedge funds) have lowered the investment threshold.
