Floyd Norris rips lack of oversight of hedge funds (scary stuff!)

[Bozita]

http://select.nytimes.com/2006/04/21/business/21norris.html

Are These Hedge Fund Results Real?


By FLOYD NORRIS
Published: April 21, 2006

NASHVILLE

FOR those who favor open markets and open investment management, it may look like the best of times. But it may really be the worst — and we may not learn just how bad it is until something horrible happens.

Never have American stock and bond markets been more transparent and subject to better regulation. New rules protect investors in companies and mutual funds by requiring better disclosures.

But more and more trading — and more and more money — now falls outside almost all regulation. Hedge funds trade with virtually no disclosure of what they are doing.

And both they and others trade — without disclosure — derivatives that had not been dreamed of when the regulatory structure was established more than half a century ago.

more...

[Warpy]

1. My dad's money guy tried to push a hedge fund

and I told him that too many of them have turned out to be classic Ponzi schemes, and that the by the time a small investor like my dad found out about them, all the money had been sucked out of them and all that was left were the bills. He's since realized I'm not nearly as dumb as I look.

However, some other outfits that USE hedge funds as part of the overall portfolio are different, since they get in on the bottom and bail by the time Joe Investor gets the news.

Derivatives are other sucker bait for the little guy. The super rich make a great deal of money on derivatives, since it's possible to make money whether the market is going up or going down. Woe be unto anybody with less than ten million to blow who thinks he can play the game, though.

There's a reason the big money guys keep this stuff unregulated.