hedge funds, saviour or menace?
'...hedge funds were a vital source of liquidity - saviours when markets dry up.' Robert Rubin 'Asian policymakers saw them as predators causing undue volatility and overwhelming central banks. Said William Pesek. Now who is saying the true picture. Both said some truth but one is truer than the other. Just look at the main reason for the existence of hedge funds. Hedge funds exist solely for profits. Never forget this. Their presence in any market to provide liquidity is incidental and to their benefits. They are in a market to soak up the liquidity and will disappear as quickly as they appear when the market dries up. And they caused upheavals in the wake of their entry and departure. Governments must get it straight. The hedge funds are not there to bring in money. In a market when there are lots of foreign funds available, it may be acceptable for the hedge funds to come in and generate activities and liquidity. For the money they are going to scoop up could be from foreign funds. But when the money in the market belongs to the people, the citizens, one better thinks a little whether hedge funds should be welcomed to take all the people's money away. Sometimes it is better to have lesser activities and gradual growth and retaining the money in the market then to allow hedge funds to come in and off load everything away. And normally such activities will incur a cost to the hedge funds for playing in the market and these could provide additional jobs and revenue. What if the bulk of the traders were international? What if commissions are negligible or nothing to talk about? In such a situation the hedge funds could operate at practically no cost, generate few jobs, but through their expertises and collusion, could wipe out a whole market. Hedge funds that are uncontrolled and allowed to play by the law of the jungle are a menace to the financial markets and can break a country.