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Knaves & fools
Reading:  The Washington Post Weekly, 13-19ap09:

   "The government is going to be more hands-on, and that's going to imply to people the government is vetting the risks relevant to a hedge fund," says Jason Scharfman, managing director of Corgentum, a firm that evaluates whether hedge funds have proper safe internal procedures.  "It exposes investors to a false sense of security that they don't need to perform adequate due diligence on the hedge funds they're investing with."  -- Zachary A. Goldfarb

What was the name of that "hedge fund" a few years ago that was set up by professional economists, one or two with Nobel Prizes, and had to be bailed out by the government?  If they couldn't "perform [exercise?] adequate [what other kind is there?] due diligence", who the hell can?  I regret to suspect that the whole point of such complicated "products" is to make due diligence impossible.  Those people didn't know how to keep speculation from leading to bankruptcy (nobody does), but they knew enough to make their thing too big to fail.  I also regret to suspect that the very use of the word "hedge" in connection with such enterprises is fraudulent in intent & in effect.  I have no head for business, and I don't know exactly how it is done, but my impression of what hedging meant was something like this:  You have enough worries being a tofu manufacturer without trying to be a soybean speculator too, so you make one bet that the price of soybeans will rise, and another that it will fall, so that they cancel out and the price to you is stabilized.  The ideal hedge has zero risk & zero return.  Trying to beat the market is not hedging.

Businesses should not be allowed to get too big to fail; or if they must be, they should belong to the government, or at the very least they should have a policeman on the board of directors.

The business community has many virtues, but among its many vices is an ingrained knowledge that business is best when fools can borrow.  It is foolish to buy what you can't afford, and it is wicked to tempt people to do so.  Those are the moral facts that got us into the present mess.  Awareness of them will not help us get out of it, but it may help us keep our bearings.


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