San Fran Fed Asks How Important Are Hedge Funds In A Crisis

Tyler Durden's picture

Finds the answer is: "very"

Before the 2007–09 crisis, standard risk measurement methods substantially underestimated the threat to the financial system. One reason was that these methods didn’t account for how closely commercial banks, investment banks, hedge funds, and insurance companies were linked. As financial conditions worsened in one type of institution, the effects spread to others. A new method that more accurately accounts for these spillover effects suggests that hedge funds may have been central in generating systemic risk during the crisis.

It also draws a bunch of boxes with arrows between all of them:

Naturally this should come as a complete shock to those who failed kindergarten or to all those who still don't understand that Hedge Funds are merely leverage-facilitating counterparties that allow Primary Dealers to net out trillions in gross margin positions (via repo, reverse repo, securities re (and re-re-re-re) pledged as collateral vs securities received as collateral and though all the other shadow banking leverage and rehypothecation conduits that virtually nobody seems to understand even though Matt King explained it all in September 2008) to zero, even though same Primary Dealers are really on the hook for about $4 trillion in exposure at last count, none of which is reflected on their balance sheets and the clueless regulators continue this epic, undercapitalized charade to continue.

More importantly, US taxpayers just spent a few tens of thousands of dollars (fresh just created by the Fed itself so think of this as fiat recycling) on this cutting edge research: surely this will generate at least one government jobs in the next NFP report, and boost Q2 GDP by at least 0.01%.

Full San Fran Fed paper for the frontally lobotomized can be found here.

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StacksOnStacks's picture

About as important as having 38 assholes on your tongue

knukles's picture

One asshole at a time..
Tongue punch her fart box

ParkAveFlasher's picture

Knukles, you certainly have your finger on the pulse of ZH.  We were ripe for TPHFB and you just frickin' OWNED it.

nope-1004's picture

Bed fellows look out for each other.


Tenshin Headache's picture

Until the house catches on fire, then it's every man for himself.

Oh regional Indian's picture

Better question to ask...How likely are hedge funds to CAUSE a crisis?

Answer : Very...


ZippyBananaPants's picture

If I did'nt have an asshole, how would I fart?

Winston Churchill's picture

Why fart and waste it ,when you can burp and taste it ?

q99x2's picture

Back to Bitcoin for a moment. Last weeks ZH article about Ebay mining machines going up for sale seems to have picked the Bitcoin bottom.

Bitcoin Last Price:  btceUSD 462.7470

venturen's picture

Wow are they ahead of the curve. The Death Of Capitalism....long live Cronyism. 

Dr. Engali's picture

WTF? With this  bunch of retards commanding monetary policy, how did our system last this long?

centerline's picture

Infinite counterparty exposure!  TBTF bitches.

Brokenarrow's picture

This is why no federal or state regulator steps foot in a hedge fund and asks to look at the books.The banks internal gambling cant hold a candle to the risk that hedge funds pose. Citidel sees themselves as a tbtf entity. Their employees sign secrecy employment contracts that subject them to the prospect of personal and financial ruin should they speak out about what really goes on there, including htf quote stuffing, et al. Try to get one of Griffin's employees to talk about the fund's activities. You will have more luck getting dick cheney to talk about torture. I have heard that Kenny-Boy is levered 100-1.

AlaricBalth's picture

Citadel had $142 billion in regulatory assets under management as of March 31, according to an annual filing with the Securities and Exchange Commission. But it only had $16.1 billion in investment capital.

moneybots's picture

Hedge fund leverage X


Federal Reserve leverage over 50 to 1.


FED wins hands down. 


So why is the FED trying to scapegoat hedge funds?

Inthemix96's picture



Fuck off, and talk sense.  Better question.  How many Hedge Fund people can grow tomatoes?

Answer, Not 'Very' Many.



SheepDog-One's picture

Sounds like just layer upon layer of crooks.

Inthemix96's picture

How many Hedge Fund People can change a light bulb?  'Very' few.

How many Hedge Fund People can change a plug?  'Very' few.

How many Hedge Fund People can take the top off a jar of Beetroot?  'Very' few.

How many Hedge Fund People can cut a lawn?  'Very' few.

How many Hedge Fund People have a 'Very' over sensed importance of their own being and think the world would come to a stand still if their over inflated egos were not fed by the cunts that think they walk on water?  'Very' much all of the parasitical cunts.


Atomizer's picture

The Fed thinning has defined the complete truth.. The broke ass fuckers are indeed broke.

  • Better than expected
  • Animal Spirits will prevail
  • Green shoots


At the end of the day..taxpayer fleecing has occurred. Line them up in a firing wall. Do a quick baiting in finding out the names. BANG!

moneybots's picture

"San Fran Fed Asks How Important Are Hedge Funds In A Crisis"


They should be asking how important financial truth is in a crsis.  Markets that go up on the basis of financial fraud, crash on financial truth.

moneybots's picture

"A new method that more accurately accounts for these spillover effects suggests that hedge funds may have been central in generating systemic risk during the crisis."


All financial roads lead back to the FEDERAL RESERVE.

That is what is central in generating systemic risk.  As Greenspan noted, 1920's FED policy lead into the Great Depression.

elwind45's picture

On the hook for what? NOT SHARING