A healthy reminder from the US on the dangers of hedge funds and the importance of monitoring star traders, with the near collapse of Amaranth, who were making huge, unhedged, bets on the natural gas futures market. Losses apparently total about USD6bn.
The good thing, though, is the smooth reaction to this one. As a result of the collapse of LTCM in 1998, where many banks got their fingers burnt, a number of changes have been put in place, notably in lending policies. These seem to have worked. LTCM’s losses were around USD4.6bn. Inflation adjusted, that is about the same as the losses here – yet the Fed has not had to get involved and no banks are reporting problems.
Let’s hope this is not seen as an excuse to regulate hedge funds, but a reminder to all that if you play with fire, you risk getting your fingers burnt.
Most popular