On the HedgeFund/Subprime Meltdown

A survey of what is out there has the New York Post approaching this in its typically sensationalist manner, though there are some pieces of useful information:

HEDGE HORROR

SUBPRIME MELTDOWN COULD WIPE OUT BILLION$

By PAUL THARP
The stunning formal disclosures, which eventually could affect as much as $2 trillion in various mortgage securities, is expected to trigger widespread revaluation of the paper, which some analysts believe could wipe out 40 to 50 percent of their values.
....
"The hedge funds are so over-leveraged, they'll be the first to crack," said Peter Schiff, CEO of Euro Pacific Capital.

By of perspective, that is about $6500 in mortgage securities for every man, woman, and child in the US, and the point about leverage is a telling one.

....
The housing crunch sent the dollar plunging to a new low against the euro for the second day, to $1.3787. The greenback fell to a 26-year low against the British pound, at $2.0271.

This is where a lot of foreign investment is going, and if it's scared off, it may not come here at all, pushing the dollar down and interest rates up.

The rather alarmist Post headline is reinforced by the fact that two Bear Stearns mortgage hedge funds have basically been wiped out. Investors have lost everything because of a relatively small drop by virtue of the amount of leverage.

So much for smart investors.

On the other side, we have Ben Bernanke claiming that everything will be fine , that the housing collapse will just a small bump int he road.

Juxtaposed with this, you have Vulture Hedge fund Black Pearl preparing to snap up cheap mortgage securities. They believe that, "The subprime market is approaching a point where 'widespread price dislocation' is likely."

Translated from the legalese, this means that folks are panicking, and they intend to capitalize on this.

I trust them more than Bernanke.