fxtrader07

Hedge Funds: The Next Shoe to Drop

Hm, I think, they are a wildcard and hinestly, much odf the selling in bonds and stocks has already been due to hedge fund liquidation. After all, credit facilities for them have been shut down or gotten very very expensive long ago. heck, it could even give a boost to certain stocks. Just look at the very high open short interest, much of which is due to hedge funds ( and not just long-short equity funds).
In any case, the most important measure of them all is to get a central clearing house for the CDS market exactly to prevent a domino-effect.
And funny thing: there has been so much credit protection been written on certain companies that they vastly exceed the bonds that were insured - and deliverable, for that matter. Now, as I understand, when you bought a CDS, say on GM, then you go to your counterparty and deliver the bonmd which it is written on(!) and in exchange you get par value (or whatever the CDS-terms specify)
Now, I wonder from where will all the CDS-buyers take the bonds for delivery, if the notional amount exceeds the actual bonds outstanding by many many times? That could be really funny to watch. Or maybe not.