A Run on the Hedge Funds

You Won't See This on TV.

There's a good article on Bloomberg today on the going-ons of the shadow financial system. Basically the banks who kept the hedge funds floating on sky-high leverages are now running after the collaterals. The margins on the repurchase agreements have multiplied and that's causing the recent hedge fund implosions and forced liquidations.

Some managers set themselves up for a stumble by taking on too much leverage and not anticipating that terms could change, said Christopher Cruden, CEO of Lugano, Switzerland-based Insch Capital Management, which oversees $150 million for clients.

``If you're going to dance with the devil, there comes a time when your toes are going to be stepped on,'' Cruden said. ``Prime brokers are there to do business, not be your friend.''

Hedge Funds Reel From Margin Calls

Makes you wonder how come the professional risk managers can't anticipate that a downturn on the market will increase the 'haircut' the bank will want on the next round. Or did they ever even care?