Tuesday, August 14, 2007
McClatchy Washington Bureau | 08/08/2007 | Hedge funds may pose a risk to U.S. economy: "The funds — managed pools of investors' money, often supplemented with huge borrowings from banks — often bet on highly speculative and exotic financial derivatives, such as 'options,' which more regulated mutual funds aren't allowed to buy, and that poses risks to all the U.S. financial institutions that are tied to them, as much of Wall Street is. It poses risks to the broader economy as well, and those risks are impossible to measure because no one knows how risky hedge fund assets are. The big systemic risk is that 'people don't know anything about (hedge fund) activities,' said Steven Brown, a finance expert at New York University's Stern Business School. 'When you have a complete lack of disclosure, everybody is locked in the same category, and the sins of the few are visited on the many.'"