Barely a week goes by without a scare story foretelling chaos in financial markets because of an imminent unravelling of the hedge fund industry.
You can almost hear the deep resonance of a news anchorman intoning the impending crises as you scour the headlines: demise of leading US broker means hedge funds won’t be able to manage their risks; probe into leading UK firm raises fears that hedge fund trading is rife with the illegal use of inside knowledge from bank pre-deal marketing; credit event of major US firm to presage unravelling of synthetic CDO market, bringing swathes of the hedge fund industry to its knees.
Will these foretellers of doom never learn? Look at the actual evidence. While a few hedge funds who used Refco as their prime broker may have had some short term inconvenience managing their risk positions, there was no shortage of other counterparties ready, willing and able to provide them with access to the market.
Unsubstantiated allegations of malpractice in the marketing of deals is hardly new (Eliot Spitzer made a career out of it, and what did he actually achieve?) and there will always be people or firms prepared to push market practices to or past their limit.