New Yorker Has It Backwards

Reader comment on: New Yorker on Ray Dalio

Submitted by J (United States), Jul 18, 2011 09:31

I believe the New Yorker has it exactly backwards: during the crisis the entities that ran with the most leverage, by far, were the investment banks. Investment banks ran with leverage 25x (and up) and that is just what is reported at the end of the quarter; the figure is likely higher during the quarter. And remember, this leverage is on a far bigger equity base than most/all hedge funds. Bridgewater is a huge hedge fund--most funds are under $1 billion of assets under management. At the end of 2007, Goldman Sachs reported shareholders' equity of $42.8 billion with total assets of $1.1 trillion. Why in the world would anyone be worried about Bridgewater and its investors when a company like Goldman Sachs exists? (Once Goldman became a bank holding company, the leverage was cut sharply.)

How strange/funny that hedge funds should be criticized for protecting their investors by reducing their exposure to entities that were unlikely to survive (e.g., Lehman, Bear Stearns). Isn't that the very definition of fiduciary responsibility? Had Richard Fuld felt the same obligation to his investors (both debt and equity), he would have taken the offer from KDB when he had the chance. (What a marked contrast to John Thain!)

I will have to read the whole article if/when I find it online. I fear I will find faulty reasoning in every paragraph and become discouraged!

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