Houston Chronicle- It’s hedge funds, not houses.
That’s the take of some economy watchers trying to best explain the recent unraveling in the stock market.
“This is 90 percent Wall Street and 10 percent Main Street,” Jack Ablin, chief investment officer for Harris Private Bank, said Friday.
“It’s virtually all a hedge fund phenomenon,” he explained, as some of the secretive investments, which often borrow $3 for every $1 in equity, are scrambling to sell holdings to meet debt obligations.
It’s among the drawbacks of a borrowing culture that has been encouraged for years as the Federal Reserve campaigned to keep interest rates low. That helped stoke liquidity and a demand for anything that could be borrowed against, including stocks and real estate.
Another market watcher agrees that hedge funds, which have been conducting business with borrowed money from banks, should take more of the rap.
“The recent market meltdown had much less to do with bad subprime loans than advertised,” Peter Morici, University of Maryland business professor, said in a report Friday. “It was caused more fundamentally by excesses at hedge and private equity funds.”
