Hedge funds were peripheral players

Sir, Photis Lysandrou distorts recent history by saying that hedge funds helped to cause the financial crisis (“The real role of hedge funds in the crisis”, Talking Head, FTfm, April 2). He expresses surprise that all the official reports into the financial crisis concluded that hedge funds did not cause the crisis because, as he puts it, hedge funds held “about 47 per cent of $3tn worth of CDOs [collateralised debt obligations]”, or $1.4tn worth, by the end of 2006. But those data were not taken seriously by those given the task of investigating the causes of the crisis, including Lord Turner in the UK and the US House Committee on Oversight and Government Reform, for a very good reason: the entire worldwide hedge fund industry was managing only slightly more – $1.7tn – in 2006. The reality, as the official reports showed, was that hedge funds were peripheral long players in the CDO market, and in a few celebrated cases were in fact short CDOs.

http://www.ft.com/intl/cms/s/0/174096c4-7d88-11e1-81a5-00144feab49a.html#axzz1rYWCI000