3 ms·

Can someone explain why my perspective is wrong on hedgefunds please? My understanding is that the GFC happened because the whole economy was levered to hell.

by kypro 6y ago

Can someone explain why my perspective is wrong on hedgefunds please? My understanding is that the GFC happened because the whole economy was levered to hell. At the risk of referencing the big short, there was a scene in that film where a stripper has levered herself up so much she owns five home. The reason the GFC happened was in reality because average people were levered up on real estate and couldn't afford their repayments. I fully understand that the financial system also took on too much risk and many understood those risks, but the narrative that hedgefunds are entirely to blame for the GFC, and that they were the only ones being irresponsible with leverage, is surely wrong? If the blame was with anyone it should be the regulators... Why were individuals and hedgefunds able to take so much risk? In the absent of regulation individuals and hedgefunds should be expected to take maximum risk for their own gain. Just like how WSBs did when they were all exploiting the infinite leverage glitch. Another thing that I don't think is true here is that the government is only there for the hedgefunds... If this last year has proven anything it's that the government is perfectly wiling to bail out individuals if they feel it's necessary to save the economy. And if the financial system is so rigged against individuals then isn't it odd how those individuals seem to be so able to destroy the hedgefunds with relative ease from a free smart phone app? I'm not trying to be edgy, I genuinely don't understand why people seem to blame hedgefunds for every inequality problem in society.

TearsInTheRain 6y ago
You want to blame the regulators but imho any system that relies solely regulators is going to be fragile. The regulators always have a chance of being captured by the industry or just plain incompetent. We have a culture of people not feeling the negative repercussions of "bad actions". Buying multiple homes was irresponsible, mortgage brokers immediately selling every loan is a moral hazard and Wall street levering up on CDOs were all problems. All of them deserve blame BUT the hedge funds and mortgage brokers got bailouts and the home buyers didnt. That smells like BS to me and anger at the people that allowed that to happen, hedge funds and bankers included, looks justified to me
- kypro 6y ago
  > All of them deserve blame BUT the hedge funds and mortgage brokers got bailouts and the home buyers didnt. That smells like BS to me and anger at the people that allowed that to happen, hedge funds and bankers included, looks justified to me What bail outs are you referring to? Are you talking about the TARP program? Because didn't most of that go to banks (not hedge funds) and wasn't that actually a net benefit to tax payers? I'm not asking rhetorically, I'm honestly just not that well informed on the details of the TARP program being from the UK and having not been old enough to have direct experience of the GFC. I do agree that more should have been done to help those struggling with mortgage debt, but again it's weird to blame hedge funds for this. To blame the hedge funds you would first have to assume they planned to take down the global economy, and then secondly assume that they have some level of responsibly over the government's decision to purchase toxic assets from the banks. It was the government who took the tax payer's money and gave it to the banks. It's also not like all hedge funds were involved in the GFC either. I guess I don't really understand what Melvin Capital did that was so bad that people now want to bankrupt the company. Being angry at certain individuals and companies for taking on the excessive risk that caused the GFC is understandable, but being angry at all hedge funds or all of "Wall Street" is silly. A lot (and I'd assume most) of these companies are perfectly responsible and acting within the law. And to be honest it's worse than just targeting random Hedge Funds, a lot of the posts I've seen on Reddit seem to be complaining about capitalism and the financial system in the general. I think this is partly why I'm feeling the need to question what and who we're angry at here. I want to make sure we're justified when we're bankrupting these companies and making their employees redundant. A mob as big as this without a clear target should worry everyone.
  - lazyasciiart 6y ago
    > To blame the hedge funds for this you would first have to assume they planned to take down the global economy No, you absolutely don't. Consider criminal charges - they differentiate between intentional harm, reckless harm and negligent harm, but they all blame the guy being charged.
    - 6y ago
sumedh 6y ago
There were people who wanted to regulate derivatives but Alan Greenspan and his cronies fought them and killed the idea of regulation.
jayd16 6y ago
When an individual is over leveraged the individual is at risk. When a bank (loosely speaking; financial entity, what have you) is over leverage, the customers are at risk. If a bank falters more people are going to be upset. That's just the nature of the situation.
Erlich_Bachman 6y ago
> seem to blame hedgefunds for every inequality problem in society. Ah, if that is your core question, that one is easy. Because most people can't think about so complex questions properly (or are unwilling, lazy, or haven't been taught), and they simplify the world into emotional picture, for example blame someone. Then it's just a question of finding who to blame, today a popular answer is "rich hedge funds".
- shawticus 6y ago
  Riiiiiiiiiiiiiiiiiiiiiiiiiiiightttttt https://www.politico.com/magazine/story/2019/08/02/joe-biden-investigation-hunter-brother-hedge-fund-money-2020-campaign-227407 https://www.politico.com/magazine/story/2019/08/02/joe-biden... TL;DR Biden is literally bought, paid for and supported by hedge funds (as is every other politician). This whole "you people are crazy this is fine" mentality has got to end, we are in WAY corrupt times.
natmaka 6y ago
In our society many domains (finance being one) are now too massive, complex and quickly 'working' and evolving for anybody (even a group) to understand enough to predict more-or-less accurately, let's say to do better than random picks in a set of possible outcomes descriptions for the next 5 years. One of the effects is that there is no real pilot onboard anymore. Some people are dressed and talking as pilots and some of them may believe they (and their teams) understand and control, but I think most feign. The huge 'kinetic energy' of all those systems let them roll forward more and more out-of-control, until some mishap reveals our lack of knowledge.

by kypro 6y ago

TearsInTheRain 6y ago

You want to blame the regulators but imho any system that relies solely regulators is going to be fragile. The regulators always have a chance of being captured by the industry or just plain incompetent. We have a culture of people not feeling the negative repercussions of "bad actions". Buying multiple homes was irresponsible, mortgage brokers immediately selling every loan is a moral hazard and Wall street levering up on CDOs were all problems. All of them deserve blame BUT the hedge funds and mortgage brokers got bailouts and the home buyers didnt. That smells like BS to me and anger at the people that allowed that to happen, hedge funds and bankers included, looks justified to me

kypro 6y ago
> All of them deserve blame BUT the hedge funds and mortgage brokers got bailouts and the home buyers didnt. That smells like BS to me and anger at the people that allowed that to happen, hedge funds and bankers included, looks justified to me What bail outs are you referring to? Are you talking about the TARP program? Because didn't most of that go to banks (not hedge funds) and wasn't that actually a net benefit to tax payers? I'm not asking rhetorically, I'm honestly just not that well informed on the details of the TARP program being from the UK and having not been old enough to have direct experience of the GFC. I do agree that more should have been done to help those struggling with mortgage debt, but again it's weird to blame hedge funds for this. To blame the hedge funds you would first have to assume they planned to take down the global economy, and then secondly assume that they have some level of responsibly over the government's decision to purchase toxic assets from the banks. It was the government who took the tax payer's money and gave it to the banks. It's also not like all hedge funds were involved in the GFC either. I guess I don't really understand what Melvin Capital did that was so bad that people now want to bankrupt the company. Being angry at certain individuals and companies for taking on the excessive risk that caused the GFC is understandable, but being angry at all hedge funds or all of "Wall Street" is silly. A lot (and I'd assume most) of these companies are perfectly responsible and acting within the law. And to be honest it's worse than just targeting random Hedge Funds, a lot of the posts I've seen on Reddit seem to be complaining about capitalism and the financial system in the general. I think this is partly why I'm feeling the need to question what and who we're angry at here. I want to make sure we're justified when we're bankrupting these companies and making their employees redundant. A mob as big as this without a clear target should worry everyone.
- lazyasciiart 6y ago
  > To blame the hedge funds for this you would first have to assume they planned to take down the global economy No, you absolutely don't. Consider criminal charges - they differentiate between intentional harm, reckless harm and negligent harm, but they all blame the guy being charged.
  - 6y ago

sumedh 6y ago

There were people who wanted to regulate derivatives but Alan Greenspan and his cronies fought them and killed the idea of regulation.

jayd16 6y ago

When an individual is over leveraged the individual is at risk. When a bank (loosely speaking; financial entity, what have you) is over leverage, the customers are at risk. If a bank falters more people are going to be upset. That's just the nature of the situation.

Erlich_Bachman 6y ago

> seem to blame hedgefunds for every inequality problem in society. Ah, if that is your core question, that one is easy. Because most people can't think about so complex questions properly (or are unwilling, lazy, or haven't been taught), and they simplify the world into emotional picture, for example blame someone. Then it's just a question of finding who to blame, today a popular answer is "rich hedge funds".

shawticus 6y ago
Riiiiiiiiiiiiiiiiiiiiiiiiiiiightttttt https://www.politico.com/magazine/story/2019/08/02/joe-biden-investigation-hunter-brother-hedge-fund-money-2020-campaign-227407 https://www.politico.com/magazine/story/2019/08/02/joe-biden... TL;DR Biden is literally bought, paid for and supported by hedge funds (as is every other politician). This whole "you people are crazy this is fine" mentality has got to end, we are in WAY corrupt times.

natmaka 6y ago

In our society many domains (finance being one) are now too massive, complex and quickly 'working' and evolving for anybody (even a group) to understand enough to predict more-or-less accurately, let's say to do better than random picks in a set of possible outcomes descriptions for the next 5 years. One of the effects is that there is no real pilot onboard anymore. Some people are dressed and talking as pilots and some of them may believe they (and their teams) understand and control, but I think most feign. The huge 'kinetic energy' of all those systems let them roll forward more and more out-of-control, until some mishap reveals our lack of knowledge.