The negative Hedge Fund effect

The summit outcome increases the pressure to deleverage even more but that’s what the charts tell us anyway. The main factor for the weeks ahead is how much redemptiom has been accrued by the Hedge Funds with the new deadline on the 15th? The problem is that Pension Funds are in big trouble, as they loose money on all fronts and Hedge Funds did not counterbalance that in a down market as their assumption was, which makes the Hedge Fund class as diversification less attractive.

G-20’s Financial-Market Regulation Proposals May Limit Profit

By Michael McKee and Simon Kennedy

Nov. 17 (Bloomberg) — Leaders of the world’s biggest developed and emerging nations put banks and investors on notice they will need to keep more capital and reveal more about their holdings, signaling the industry may emerge from the current crisis with less potential for profit.

President George W. Bush and his counterparts from the Group of 20 blamed a looming global recession on imprudent investors who “sought higher yields without an adequate appreciation of the risks.” Supervisors who failed to address the dangers building in markets were also at fault, the group said in its statement after meeting Nov. 15 in Washington.

The leaders are seeking to correct those failures with their new demands, particularly higher capital standards and stronger risk management at banks, hedge funds and credit-rating firms.

“What they’re looking to do is to erect a new global financial architecture through improved regulation,” said Peter Hahn, a fellow at London’s Cass Business School and a former managing director at Citigroup Inc. “Inevitably more regulation is going to make financial services less profitable and should rein in excessive risk.”

Writedowns and losses totaling $964.6 billion at financial institutions worldwide have triggered a surge in the cost of credit, cutting off access to capital for consumers and companies.

Chief among the changes sought by the G-20 are ways to increase international surveillance of the financial firms whose operations, and problems, cross national borders.

Hold More Funds

Banks that take on more risky structured credit, such as collateralized debt obligations, and securitize loans would need to increase their capital. That would likely limit the amount they can make selling such products.

“They want to enforce a smaller, more prudent banking system,” said Charles Goodhart, a former policy maker at the Bank of England. “If banks are required to hold more capital then clearly the rate of return on it will go down.”

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~ by behindthematrix on November 18, 2008.

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