"Its not just lower income people who will face problems from the recent closing of the low interest rate, no need for income model of home lending," says Harlan Platt, Ph.D., corporate turnaround expert and finance professor at Northeastern University's College of Business Administration. "The capital markets are backing up all across the globe as a consequence of the failure of lending institutions to adequately factor in risk."
"The biggest users of the cheap money were hedge funds. For each dollar invested in them many have levered themselves up by borrowing an additional $5 or $10," adds Dr. Platt. "Before the crisis the world was wonderful for them as they earned their enormous fees not just on the invested dollar but also on the borrowed dollars. Using these fees hedge managers lived like Roman emperors; buying cars, homes and other luxury goods."
"When hedge funds begin to fail (and many are poised to do so which is why the Fed cut the discount rate) luxury goods will go looking for buyers," concludes Prof. Platt. "Watch prices in Aspen, Palm Beach and East Hampton fall dramatically. Seems that too many "wise" investors forgot about the risk/return tradeoff."
"The biggest users of the cheap money were hedge funds. For each dollar invested in them many have levered themselves up by borrowing an additional $5 or $10," adds Dr. Platt. "Before the crisis the world was wonderful for them as they earned their enormous fees not just on the invested dollar but also on the borrowed dollars. Using these fees hedge managers lived like Roman emperors; buying cars, homes and other luxury goods."
"When hedge funds begin to fail (and many are poised to do so which is why the Fed cut the discount rate) luxury goods will go looking for buyers," concludes Prof. Platt. "Watch prices in Aspen, Palm Beach and East Hampton fall dramatically. Seems that too many "wise" investors forgot about the risk/return tradeoff."
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