It is just like in so many stories, and the movie "It’s a Wonderful Life" comes to mind for me first. In the movie, the “bad” guys are buying anything they can, from real estate to the shares of the Building and Loan at $0.50 on the dollar.
Jimmy Stewart asked the only real question: “Why are they buying while everyone is selling, and in a panic?" The reason may be that the investment banks have calculated that they can profit greatly by buying, holding, re-working, and selling these securities over time.
This morning in Money Management Executive, it is reported that:
Goldman Sachs (NYSE:GS) is raising money to launch a new hedge fund to exploit distressed-debt bargains, according to Reuters.
The bank has raised more than $1.5 billion in the past few weeks for Goldman Sachs Liquidity Partners, sources said. Its reported goal was $1 billion.
The fund will invest in a broad range of distressed assets, including mortgages and buyout loans. Goldman’s efforts come at a time when a number of hedge funds are asking for capital for new distressed debt funds.
Goldman’s rival Lehman Brothers (LEH) is preparing a $2 billion fund, a person familiar with the situation stated.
More than a dozen distressed funds have raised $23 billion through last month, topping the $18 billion raised for such funds last year, according to research firm Private Equity Intelligence.
It seems that while some are panicking, others are bargain hunting. These investment banks have a strong history of success. History seems to have a funny way of repeating itself, smart bankers making money while others panic.
The market is trouble finding the ground again today. Let’s look at history for guidance.
Disclosure: Mr. Corn is CEO of Clear Indexes. Lehman Brothers Holdings Inc. (LEH), and Goldman Sachs Group Inc. (GS) are constituents of the Clear Global Exchanges, Brokers, and Asset Managers Index licensed for the ETF Symbol (EXB). Mr. Corn owns shares of EXB.