Rebel Capitalist News Two SUBPRIME Hedge Funds Just Blew Up (What You Need To Know)
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Nov 12, 2025 Two subprime hedge funds have collapsed, revealing serious cracks in the financial system. The closing of UBS's O'Connor funds highlights the dangers of counterparty risk and investor panic. As redemptions trigger fund liquidations, fears of a repeat of the Bear Stearns crisis grow. The podcast dives into how misclassified 'high-grade' funds have become entangled with subprime assets, drawing alarming parallels to past market failures. Signs of consumer weakness and potential government responses are also discussed, raising questions about future economic stability.
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Bank Balance Sheets Are The Network
- The global monetary system is a network of interconnected bank balance sheets that amplifies counterparty risk.
- When one node fails, liquidity tightens and risk cascades across the system like old Christmas lights.
Redemptions Spread Distress Quickly
- Redemptions can topple funds even without direct exposure to the original loss.
- Investors flee when they see trouble, which forces managers to liquidate and spreads stress across related funds.
High‑Grade Labeling Can Mask Subprime Risk
- UBS marketed some funds as 'high grade' despite exposure to subprime assets, mirroring Bear Stearns' 2007 approach.
- Labeling risky products as high grade masks true risk until a tide reveals the weaknesses.