SuperCash
The New Hedge Fund Capitalism
Chapter One
Hedge Funds Are
the New Banks
In testimony before the Senate Banking Committee in February 2004,
Federal Reserve Chairman Alan Greenspan expounded on why he
thought hedge funds should stay, for now, beyond regulation: "The
value of these institutions is to create a very significant amount of liquidity
in our system." When he says "liquidity," I don't think he means it in the
traditional sense that hedge funds are simply providing more buyers and
sellers for stocks in order to make a more efficient stock market. Rather, I
think he's referring to all the illiquid areas within traditional banking
where, because of risk aversion or just plain fear, the banks are losing
valuable opportunities to generate returns and the hedge funds are stepping
in to take their place.
Trading strategies obey the same laws that particles do in quantum
physics: When you observe them (i.e., index a hedge fund strategy) they
change. By definition, funds are alternatives. To institutionalize th ... read full excerpt from SuperCash: The New Hedge Fund Capitalism ebook
