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hedge funds

The Leveraged Buyout of America

"Government cannot prevent nature from taking its course."
- David Rosenberg, chief North American economist at Merrill Lynch

"Hedge funds are now targeting each other. Morgan Stanley and Goldman Sachs, who made obscene profits by shorting stocks in the past, are vociferously against the practice now that their stocks are the ones being destroyed." - Bruce Goodman

"Oil prices are largely not determined by supply and demand but the trading desks of large Wall Street firms." - Michael Masters, hedge fund manager

"Hedge fund riches helped inflate the price of everything from modern art to Manhattan real estate. Top managers raked in billions of dollars a year, and managing a fund became the running dream on Wall Street." - Louise Story 10/22/08

A hedge fund is a private investment fund. Hedge funds are not subject to any direct regulation by the SEC, the NASD, or any other federal regulating commissions.

Hedge funds may hold long or short assets, may enter into futures, swaps, short selling schemes, security investment vehicles or other derivative contracts. Some hedge funds focus on other financial instruments including commodity futures, options, and emerging market debt.

Hedge funds focus on and may place funds in anything that is touted as a "security." A security may be simply an electronic entry in a software system that is fungible, ie. you can trade it for an electronic entry in a different software system. As hedge funds typically use leverage/gearing or debt to invest, the positions they can take in the financial markets are larger than their assets under management.

Only 17% of hedge fund managers viewed an economic downturn as a bad news.

1998 During the first phase of deregulation the financial industry had a near-meltdown triggered by the collapse of the hedge fund Long-Term Capital Management. Although the shareholders lost their assets the creditors were paid off by the Federal Reserve. The loss of $4 billion in five weeks were followed by a precipitous drop in stock value across the board. Sometimes touted as the 'tech bubble' this wiped out much of the paper wealth of lower echelon corporate management, members of the middle class, in the form of 'under water' stock options. ('under water' stock options are granted at a price higher than the price the grantee can now sell the stock for on the open market thus returning the wealth to controlling corporate interests.)

"The Fed assembled a consortium of banks to rescue Long-Term Capital Management, and it took 15 months, from September 1998 to January 2000, to negotiate their way out of trades tied to more than $1 trillion in bets." - Richard Teitelbaum and Hugh Son



2000 Tiger Management fails after raising $6 billion.

2003 Aman Capital is set up by top derivatives traders at UBS. Leveraged trades in credit derivatives resulted in an estimated loss of hundreds of millions of dollars. Dissolved June 2005.

2004 Edward Lampert 'earns' $1.02 billion.

2005 Bailey Coates Cromwell Fund leveraged trades chop 20% off of a $1.3-billion portfolio in a matter of months. Dissolved June 20, 2005.

Marin Capital a California-based hedge fund attracted $1.7 billion in capital and put it to work using credit arbitrage and convertible arbitrage to make a large bet on General Motors. General Motors' bonds downgraded to junk, fund crushed. Dissolved on June 16, 2005.

James Harris Simons 'earns' $1.6 billion.

T. Boone Pickens 'earns' $1.5 billion.

Ken Griffin 'earns' $1.5 billion.

2006 Ospraie Management LLC closed a $250 million hedge fund specializing in commodity trading. The Ospraie Point Fund lost 29 percent in five months. Losses from bad bets in commodities that fell sharply. Dissolved June 08, 2006.

Amaranth Advisors, a hedge fund manager, loses $6 billion in wrong-way bets on natural gas derivatives in September. Amaranth Advisors net asset value declined by 65% to 70%. Amaranth Advisors controlled 40% or more of natural gas contracts in 2006 and in one month controlled 70%.
Edward Lampert 'earns' $1.3 billion.

James Harris Simons 'earns' $1.7 billion.

2007 Senate investigators conclude that Amaranth Advisors trading actions drove up the price of natural gas for the entire natural gas market. Amaranth Advisors agreed to pay $717,000 to settle SEC charges of violating securities rules.

The Bear Stearns hedge fund Enhanced Leverage Fund and High-Grade Fund together borrows $20 billion to invest in sub-prime mortgage backed bonds. Investors are told in July 2007 that their investment of $1.5 billion is gone.

In a survey conducted by Rothstein Kass 61% of hedge fund managers stated that a recission in America was very likely in 2008.

66% of hedge fund managers said that a recission would bring investment opportunities.

George Soros 'earns' $1 billion.

Stephen Cohen 'earns' $900 million.

Bruce Kovner 'earns' $715 million.

Paul Tudor Jones 'earns' $690 million.

Tim Barakett 'earns' $675 million.

David Tepper 'earns' $670 million.

Carl Icahn 'earns' $600 million.

Hedge fund manager John Paulson made $3 billion by shorting financials in anticipation of the American housing market collapse. John Paulson is also believed to have made 311 million pounds ($428 million) from September to February by short selling Lloyds Banking Group Plc and HBOS Plc.

"Bernie was known for his generous philanthropy, especially to Zionist, Jewish and Israeli causes. But Madoff was no Robin Hood, his philanthropic and charity contributions facilitated access to the rich and wealthy who served on the boards of the recipient institutions and proved that he was 'one of them' a kind of super-rich 'intimate' of the same elite class. The shock, awe and heart attacks that followed Madoff's confession that he was 'running a Ponzi scheme' drew as much anger for the money lost and the fall from the moneyed class as for the embarrassment of knowing that the world's biggest exploiters and smartest swindlers on Wall Street, were completely 'taken' by one of their own. Madoff's swindle and fraudulent behavior is not the result of personal moral failure. It is the product of a systemic imperative and the economic culture, which informs the highest circles of our class structure. The paper economy, hedge funds and all the 'sophisticated financial instruments' are all 'Ponzi schemes' – they are not based on producing and selling goods and services. They are financial bets on future financial paper growth based on securing future buyers to pay off earlier cash ins." - James Petras


well ill be damned

earned income

Hedge fund managers hold their assets one year and one day magically converting short term assets into long term assets.

In America the average weekly earnings in 2007 were 15% below the 1972 peak in relative terms according to the Bureau of Labor Statistics.

"Since 1960 each of the seven previous recoveries ended with a greater percentage of women at work than when it began. Working women now earn a third of America's total household income, and by and large, only those homes with a working wife have made real gains in their standard of living over the last eight years. Yet, over that same period, the percentage of women employed outside the home has fallen to where it was 12 years ago. Meanwhile, the median hourly pay of women 25 to 48 years of age has fallen from $15.04 in 2004 to $14.84 last year. This corrosive pattern holds true, according to the federal statistics, for all American women, regardless of education, race, ethnicity or marital or familial status." - Tim Rutten 07/08

"Most working mothers work because their families cannot survive without their paychecks. Therefore, by definition, families in which the wife is not required to work are families feeling a little less crushed by the new economy. Lucky them. The high number of married women and mothers in the workforce is not a feminist triumph; it is merely the result of economic pressures that have reshaped the American family since the 1980s. I don't know any working mothers who wouldn't be happier if their husbands could support the family by themselves."- Renee Leask

"The real argument isn't that the top 1% percent pay 40% of federal income taxes, but how they are taxed. Wage earners can be taxed up to 35%. Capital-gains earners generally can be taxed as high as 15%. Under this formula, the individuals whose wealth works for them, by accruing interest and wealth from stocks, are rewarded by the government for being wealthy enough not to have to work. The rest are penalized for showing up to work." - Brain T. Finney

Intercontinental Exchange (ICE)

"Goldman Sachs was one of the founding partners of online commodities and futures marketplace Intercontinental Exchange (ICE). And ICE has been a primary focus of recent congressional investigations; it was named both in the Senate's Permanent Subcommittee on Investigations' June 27, 2006, Staff Report and in the House Committee on Energy & Commerce's hearing. Those investigations looked into the unregulated trading in energy futures, and both concluded that energy prices' climb to stratospheric heights has been driven by the billions of dollars' worth of oil and natural gas futures contracts being placed on the ICE, which is not regulated by the Commodities Futures Trading Commission." - Ed Wallace

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