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Re: When Hedge funds attack

Released on 2011-03-15 18:00 GMT

Email-ID 1112696
Date 2010-03-04 17:59:49
they actually do expropriate... ask J.C. Flowers!

It is a perfect way to pass the buck, Europeans know this game and have
played it for centuries:

- pick some rich people, CHECK
- preferably American, CHECK
- preferably dining in an expensive Manhattan restaurant, CHECK
- with a private dining room, CHECK
- blame them for everything, including the Black Death, CHECK
- build some shower rooms... getting there

Robert Reinfrank wrote:

Having dinner and taking each others' temperature is not colluding or
illegal. However, with all their huffing and puffing about the euro,
Eurozone governments are essentially saying that it is illegal for any
one to question the integrity of their currency (or public finances, or
whatever). Hence, they intimidate and threaten to--if they don't
actually-- expropriate, regulate, tax, sue, and imprison. Government is
going to bully and scare every which way it can, and hedge funds are an
easy, high-profile target-- "hedge fund" packs even more punch than
"speculators," and everyone knows how they caused the financial crisis,
right? This is simply a diversionary tactic.

Peter Zeihan wrote:

if they are actually colluding, the JD had better go after them

making market bets is one thing -- actively collaborating in doing so
is flatly illegal

Marko Papic wrote:

Interesting stuff... Why is the Justice Department going after hedge
funds? Pressure from Europe?

March 4, 2010

Traders Seek Out the Next Greece in an Ailing Europe


Is Spain the next Greece? Or Italy? Or Portugal?

Even as Greece pledged anew on Wednesday to rein in its runaway
budget deficit, briefly easing the anxiety over its perilous
finances, traders on both sides of the Atlantic weighed the risks -
and potential rewards - posed by the groaning debts of other
European governments.

While investors welcomed news that Athens would raise taxes and cut
spending by $6.5 billion this year, analysts warned the moves might
not be enough to avert a bailout for Greece or to contain the crisis
shaking Europe and its common currency, the euro.

Indeed, some banks and hedge funds have already begun to turn their
attention to other indebted nations, particularly Portugal, Spain,
Italy and, to a lesser degree, Ireland.

The role of such traders has become increasingly controversial in
Europe and the United States. The Justice Department's antitrust
division is examining whether at least four hedge funds colluded on
a bet against the euro last month.

"If the problems of Greece aren't addressed now, there is a risk the
market will focus on the next weakest link in the chain," said Jim
Caron, global head of interest rate strategy at Morgan Stanley.

Whatever the outcome in Athens, the debt crisis in Europe threatens
to tip the financial, as well as political, balance of power across
the Continent. With Germany and France emerging as the most likely
rescuers, leaders in Berlin and Paris could end up dictating fiscal
policy in Portugal, Ireland, Italy, Greece and Spain.

And in the months ahead, fears about the growing debt burden
elsewhere in Europe are likely to return, according to investors and
strategists. That is particularly worrying given that Western
European countries must raise more than half a trillion dollars this
year to refinance existing debts and cover their widening budget

The way fear can spread from capital to capital reminds Mr. Caron of
how the American financial crisis played out. "What people are doing
in the markets is no different from what they did with the banks,"
he said. "First it was Bear Stearns, then it was Lehman Brothers and
so on. That's what people are worried about."

France and Germany are emerging as the crucial backers of any
lifeline for Greece, but they have slow growth and budget troubles
of their own - deficits equaling 6.3 percent of gross domestic
product in Germany and 7.5 percent in France. And among voters in
both countries, "there is very little appetite for rescues," said
Marco Annunziata, chief economist for Unicredit.

The most vulnerable country after Greece, some analysts say, is
Spain, which has been mired in a deep recession. Facing an
unemployment rate of 20 percent, a budget gap of more than 10
percent of gross domestic product, and an economy expected to shrink
by 0.4 percent this year, Madrid has little wiggle room if investors
shun an expected 85 billion euros in new bond offerings this year.

Spain's neighbor Portugal is also vulnerable. Large budget and trade
deficits, combined with a shortage of domestic savings, leave
Portugal dependent on foreign investors. And, as in Greece, there
may be little political will to slash spending or raise taxes.

That's in sharp contrast to Ireland, which had been a source of
anxiety last year. New austerity measures, including a government
hiring freeze and public sector wage cuts, have put it in a stronger
position as it raises 19 billion euros this year.

The Italian government is also heavily indebted - it has more than
$2 trillion in total exposure - but it is also in a slightly
stronger position than Spain or Portugal because its economy is
expected to grow by 0.9 percent this year and 1.0 percent next year.
In addition, its budget is not as far out of whack, with the deficit
this year expected to equal 5.4 percent of G.D.P.

According to Kenneth J. Heinz of Hedge Fund Research, the big hedge
funds are now evaluating the response by other European countries in
extending a lifeline to Greece before they probe weaknesses and
opportunities in other countries.

Hedge funds, banks and other institutions are still wagering on a
drop in the euro as well as the British pound.

Those trades have been controversial for months in Europe. But the
debate shifted to the United States on Wednesday, after it emerged
that at least four hedge funds had been asked by the Justice
Department to turn over trading records and other documents. That
request followed a dinner in New York last month where, among
several other subjects, representatives of some of these hedge funds
discussed betting against the euro.

The funds that received the letters - Greenlight Capital, SAC
Capitol Advisors, Paulson & Company and Soros Fund Management - are
among the best-known names in the hedge fund universe. Greenlight
and SAC declined to comment, as did the Justice Department. Paulson
& Company, whose representatives did not attend the dinner, also
declined to comment.

In a statement, Michael Vachon, a spokesman for Soros Fund
Management, denied any wrongdoing and said, "It has become
commonplace to direct attention toward George Soros whenever
currency markets are in the news."

The dinner, in a private room at the Park Avenue Townhouse
restaurant in Manhattan on Feb. 2, involved about 20 people and was
characterized as an "ideas round table" by several who attended. But
people present at the dinner or knowledgeable about the discussion
said the idea of shorting the euro occupied only a few minutes of
the conversation.

The presentation on the euro, by SAC, lasted less than five minutes,
according to these people.

Notes provided by one of the firms that attended the dinner
summarized the discussion on the euro state: "Greece is important
but not that important; instead you have to start thinking about
every other country. What's after Greece? Spain, Ireland, Portugal."

James S. Chanos, a hedge fund investor who has not been making bets
on the euro, defended the positions taken by hedge funds, calling
the inquiries into their activities "witch hunts."

"Hedge funds and short-sellers are being blamed for the failings of
other people," he said. Nevertheless, the anxiety in Europe is
reflected on the Chicago Mercantile Exchange, where trading in
futures on the euro soared to a record $60 billion in February - up
71 percent from a year ago.

"The Greek story is putting downward pressure on the euro," said
Derek Sammann, a managing director at the CME. According to CME
data, hedge funds are in their most bearish position in a decade in
shorting the euro, said Mary Ann Bartels of Bank of America Merrill

"They have been short for a while, but in the past two weeks have
really pressed it," she said.

U.S. Probes Hedge Fund Bets Against Euro: Source

whole article is interesting


Filed at 1:32 p.m. ET

NEW YORK (Reuters) - The U.S. Justice Department has launched an
investigation into whether hedge funds might have acted together in
betting against the euro, a source familiar with the situation said
on Wednesday.

The Wall Street Journal, citing people familiar with the matter,
said the department has asked hedge funds including SAC Capital
Advisors LP, Greenlight Capital Inc, Soros Fund Management LLC and
Paulson & Co to retain trading records and emails relating to the

SAC, Greenlight and Paulson declined comment to Reuters about the
reported request, while Soros Fund Management failed to respond to
inquiries. The Justice Department also declined to comment.

The euro has come under selling pressure during the Greek debt
crisis, losing over 10 percent since November, and the newspaper
said the request, dated February 26, coincided with its article
describing gatherings of hedge fund managers where the euro was

The Justice Department's letter said the antitrust division "has
opened an investigation into agreements among various hedge funds
that trade euro contracts," the newspaper quoted a source as saying.

The letter requested that the funds "preserve all documents" and
electronic communications relating to agreements to trade the euro
or communications about agreements to trade currencies, the source

The letter being described matches the description of a preservation
order, where the Justice Department asks for information to be
retained that would help them determine if there was a plan to
collude or enforcement of that collusion, said Andrew Gavil, who
teaches antitrust law at Howard University.

"Either could be very damning and could lead to criminal
indictments," he said.

The reported Justice Department probe comes at a time when financial
institutions are facing scrutiny over their role in the Greek
financial crisis.

Critics accuse Wall Street firms of exacerbating the crisis by first
helping governments mask their debts through derivatives deals only
to benefit later by driving down the value of securities related to

Last week, Federal Reserve Chairman Ben Bernanke said the U.S.
central bank was looking into derivatives transactions that
financial firms made with Greece.

But the idea of collusion among hedge fund traders made no sense to
Evan Stewart, an antitrust expert with the law firm Zuckerman
Spaeder LLP.

"Hedge fund managers tend to.... make their own bets and generally
guard the secrecy of their own bets because they think they're
smarter than the next guy," he said.

"It's hard to understand what the motivation would be for hedge fund
managers to collude... but maybe there's some evidence that they

Adair Turner, chairman of Britain's Financial Services Authority,
said on Tuesday that the total amount of CDS short positions in the
area of Greek problem debt was only 3 percent to 4 percent of
outstanding Greek sovereign debt.

"The biggest driver is confidence levels and actions of long
investors," he said.

(Reporting Jennifer Ablan in New York and Diane Bartz in Washington;
Editing by Neil Fullick and Tim Dobbyn)


Marko Papic

Geopol Analyst - Eurasia
700 Lavaca Street, Suite 900
Austin, TX 78701 - U.S.A
TEL: + 1-512-744-4094
FAX: + 1-512-744-4334


Marko Papic

Geopol Analyst - Eurasia
700 Lavaca Street, Suite 900
Austin, TX 78701 - U.S.A
TEL: + 1-512-744-4094
FAX: + 1-512-744-4334