TJ Marta, a strategist at RBC Capital Markets:
“Leveraged hedge funds are subject to leveraged losses and the same fate as the Bear Stearns funds, while real money investors can be forced by their investment mandate to sell non-investment grade paper.”
In other words, other hedge funds will go the same way as Bear Stearns. And not only that, some of the investors who’ve put money into what they thought were investment grade CDOs will be forced to sell them when credit ratings agencies downgrade them. What happens then, TJ?
“A vicious downward spiral could result, leading to the liquidation of other assets and positions, including the FX carry trade.”
It’s also known as a credit crunch – and it won’t be pretty….”
Read more at Money Week.