ITWASSOOTED: World's hedge funds face crisis as Refco suspends trading

Saturday, October 15, 2005

World's hedge funds face crisis as Refco suspends trading

World's hedge funds face crisis as Refco suspends trading

· Leading global broker admits 'liquidity problem'
· Billions of pounds could be tied up in frozen deals

Jill Treanor
Friday October 14, 2005

The Guardian

A crisis in the world's hedge fund industry was in prospect last night after one of the world's largest derivatives brokers was forced to freeze trades potentially worth billions of pounds.

The move by Refco, which acts for many leading speculative investors both on Wall Street and in the City, followed the discovery of accounts irregularities at the firm earlier this week and the issue of fraud charges against its former chief executive Phillip Bennett. story continues


Gambling on Derivatives

Hedging Risk or Courting Disaster?
"It could rip your guts out overnight ... the biggest, most potentially lucrative, and destructive market in the world ."

Into the Fire by Linda Davies.
"In no circumstances enter the derivatives trading market without first agreeing it in writing with me ... at some time in the future it could bring the world's financial system to its knees."

Sir Julian Hodge

Memo, dated November 1990, to senior executives of the Cardiff-based Julian Hodge Bank, quoted in the Western Mail, Tuesday, February 28 1995.
"We view them as time bombs both for the parties that deal in them and the economic system ... In our view ... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Warren Buffett

The world's greatest stock market investor, known as "the Sage of Omaha", in his Chairman's Letter in the Berkshire Hathaway 2002 Annual Report.
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