Hedge Funds Reel From Margin Calls Even on Treasuries

[Celebration]

It appears it is not just the run of the mill credit card holder that experiences the fallout from the negative banking reserves (No Money To Lend Syndrome)--

http://www.bloomberg.com/apps/news?pid=20601087&sid=aqcXY9R7AbkY&refer=worldwide

The hedge-fund industry is reeling from its worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States.

Since Feb. 15, at least six hedge funds, totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market -- raised borrowing rates by as much as 10-fold with new claims for extra collateral.

While lenders are most unsettled by credit consisting of real estate and consumer debt, bankers are now attempting to raise the rates they charge on Treasuries, considered the world's safest securities, because of the price fluctuations in the bond market.

``If you have leverage, you're stuffed,'' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back.

[Warpy]

1. The collapse of LTCM in 1998 should have been the wakeup call

for institutional investors that hedge funds were marketing thin air as assets, but it wasn't.

Now banks, brokerages, insurance companies, and pension plans are starting to discover that a lot of what they had in the "assets" column was a bunch of bogus paper representing bad loans, paper that had been bid up past all reason every time it changed hands.

This is a Ponzi scheme that trapped the big money boys instead of just a bunch of us little fish. The outcome will be the same, though, as we little fish are left with nothing but declining wages in an inflationary economy to try to survive on, while banks call for us to spend more and more servicing our debt.