Bear Stearns again, and Private Equity vs. Hedge Funds

The weblog Calculated Risk has a post up about the Bear Stearns saga, such as it is. I didn’t know conventional wisdom was blaming sub-prime mortgages, but I don’t tend to spend much time on agents of conventional wisdom (like the New York Times). Just enough to find out the bits I need to look elsewhere for details. Which is professional of me, since I linked to the same NYT article. No, wait! I don’t do this professionally anyway. As you were.

I was at least gratified to see someone else relatively unsympathetic (so too the Big Picture) to hedge fund clients’ dissatisfaction with the already enormous returns they were getting on the debt in which they were already investing. And hence demanding higher returns still (dicks. I mean seriously, do they think their fund manager is just being lazy and not shaking the money tree hard enough?). So higher yields means riskier debt (or, in this case, the scary-ass Frankendebt of CDOs), and …and… This shouldn’t come as a surprise, is my point. Hence the lack of sympathy.

But trying to put the story out that it’s the fault of the sub-prime lending market is a bit much. Irrespective of the pseudo-downward-reaching (I learned that term today, reading about the nasty Dick Cheney) squeeze being put on them (we look forward to housing numbers this week).

The Big Picture also put me on to an interesting story about how private equity is hurting hedge fund money-making, by making big plays for troubled firms (hedge funds formerly making loads of money by selling short – essentially betting that the firm would go down and/or under). In the process, they send the stock price back up, and hedge funds lose their gamble. The rabid nature of takeover activity from private equity (even as private equity will eventually run out of targets) generates takeover speculation from firms that get into trouble while having any sort of possibility of redemption.

Again, I don’t like this because it is incredibly destabilising for the firms, the employees, and whatever it is that firm may produce – don’t forget, the strength of our economy and stock markets still relies upon us making and selling things, and we need some stability in our ownership, management, suppliers, job-security, etc. for that to happen. On the other hand, of course, the old ‘system’ was Firm Goes Under, Hedge Fund Wins Gamble. Which probably wasn’t that much better. I suppose it’s a matter of perspective. I still prefer mine.

A neighbour is clearly watching a sporting activity of some kind. I certainly don’t wish for his exuberance to have an adverse health effect, but I do want him to shut the hell up.


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