Hedge Fun Mania!

These things are dangerous. In case you don’t know, a hedge fund borrows money and makes huge bets intended to “Hedge” other positions. Many operators just make naked bets with this borrowed cash. They either win big or lose big. The real trouble comes when we have to bail them out. A perfect example is Long Term Capital Management or LTCM, a hedge fund that went bust and required a $56 billion bailout. The 2 Nobel PhDs in Economics, Robert Merton and Myron Scholes, who ran the game, did not know what hit them.

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