Thursday, March 13, 2008

Unbelievable numbers

The numbers behind Carlyle capital - the hedge fund that is currently on the verge of insolvency - are just incredible.

  • The fund was started in 2006, but it attracted $670 million in equity.
  • It used that equity to build up assets amounting to $21.7 billion. It built up these assets by borrowing around $21 billion.
  • Most of its assets were mortgage-backed securities, primarily AAA-rated bonds guaranteed by Fannie Mae and Freddie Mac. As we have seen,these MBS haven't looked too good recently, what with all those foreclosures in the US.
  • It was leveraged 32 times, giving it an capital ratio of 3.2 percent of its assets.
  • According to the WSJ, it has defaulted on about $16.6 billion of its loans, and expects to default on the rest.
  • The stock has lost around 83% since the company first disclosed its funding problems last week. So the shareholders are pretty much wiped out.

    How does this kind of hedge fund ever get past a financial regulator?
  • 2 comments:

    Anonymous said...

    ¨How does this kind of hedge fund ever get past a financial regulator?¨

    Risk / Reward it is what the capitalist system is about. The most important thing you said in your post ¨the shareholders have been wiped out¨, that is as it should be.

    Anonymous said...

    never understood the importance of off balance sheets.
    Its like buying 1000 barells of oil in the pit with credit of 90 or 120 days to pay so they sell it well before then knowing there mark up.
    If no 120 day credit it would help bank emploies have plenty to do earning paper transactions fees.
    Now you know the importance of the same type of ease for a quick buck ,,, being made again and again withen 120 days by each new owner of each 1000 barrel of oils sold each time.
    what if countries buy direct from source with there own refeniries in place.