Roubini Says `Panic' May Force Markets to Shut Down, Hedge-Fund Failures

[Purveyor]

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, said at a conference in London today. ``There will be massive dumping of assets,'' and ``hundreds of hedge funds are going to go bust,'' he said.

Group of Seven policy makers have stopped short of market suspensions to stem the crisis after the U.S. pledged on Oct. 14 to invest about $125 billion in nine banks and the Federal Reserve led a global coordinated move to cut interest rates on Oct. 8. Emmanuel Roman, co-chief executive officer at GLG Partners Inc., said today that as many as 30 percent of hedge funds will close.

``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.

Roubini predicted in July 2006 that the U.S. would enter an economic recession. In February this year, he forecast a ``catastrophic'' financial meltdown that central bankers would fail to prevent, leading to the bankruptcy of large banks exposed to mortgages and a ``sharp drop'' in equities.

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BLOOMBERG: http://www.bloomberg.com/apps/news?pid=20601087&sid=ayHUWEWFBGoM&refer=home

[Purveyor]

1. My thought is the administration is 'trying' to keep this situation from happening until after the

election.

After that...hang onto your ass and yes the hatewing talkingheads will blame it all on the DEM election sweep.

JMO

[Atman]

2. Bingo

You are an astute observer.

.

[opihimoimoi]

3. The odds don't look good for the near future....thanks in large part to the GOP

Rough times ahead.....most likely.....DOW will recede further ....perhaps till 6000 or so...

[tama]

6. 2000-4000

Then rebounding to 6000-8000 - only to find out there is not enough oil left to support the growth system. Then 0. My best guess for the coming years...

[muriel_volestrangler]

4. Question: when hedge funds fail, how big are the knock-on effects?

I'm unsure if there's a real difference between 'hedge funds' and 'private equity funds'. The latter take controlling stakes in actual companies, usually by borrowing lots from banks, using the shares they get as collateral. So if they go bankrupt, I can see that would mean banks are left with more loans that may not get paid, with collateral that has plunged in value recently, which would be a problem. Does this apply with the hedge funds that are predicted to fail too? Have banks or other institutions lent them lots as well, so that their failures will screw everyone else too? Or are they 'wht rich people do with their money', so that their failures will just be rich people losing what they've been gambling with?

[muriel_volestrangler]

5. Possible answer to my own question, from this article from another thread

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=395148&mesg_id=395148

And here we also have to give a nod to the influence of the large hedge funds that have grown like kudzu in recent decades (in 2005, hedge funds held about three-quarters of a trillion dollars in assets; by the fall of last year, that number was estimated at around $2.7 trillion). A hedge fund is like a mutual fund that allows rich investors to cover their bets by putting a little bet on the other team. But unlike a mutual fund, which has to follow a whole slew of regulations, hedge funds, because they're only open to small numbers of "qualified investors" -- people with $5 million worth of investments -- are almost totally unregulated, the assumption being that the big investors are savvy enough to watch out for themselves and therefore don't need much oversight. They can play very loose, buying into speculative, risky investments that have the potential to turn a high yield, and they can be (and generally are) highly leveraged. There are few institutions that are less transparent than hedge funds, which rely on keeping their activities under wraps to keep from getting beaten by their competitors.

:scared: