As the subprime market has tanked, a recent Bloomberg article (hat tip Doomer John, who circulated an email about this earlier today) takes a timely and extremely insightful look at the fallout -- what's insanely interesting here is that as investment banks hesitate, hedge funds are swooping in to fill the new subprime void:
The subprime crisis is making investment banks more reluctant to bid for new pools of distressed loans that come to market and that's giving hedge funds "quite a bit more clout,'' said William Looney, an executive vice president at Boston-based Debt Exchange Inc., which brokers sales of loans for banks and securities firms. ... "When the market was healthier, we found more value in securities,'' said Laurence Penn, a former Lehman mortgage-trading executive who helped found New York-based Ellington in 1994. In today's distressed market, the individual loans look like better deals, he said. ... "You're seeing hedge funds beating the traders to the punch,'' said Jeffrey Garfinkle, a partner of the law firm Buchalter Nemer, who specializes in mortgage-company financing.
And, of course, not just for pooled assets -- hedge funds and private equity are jumping in to buy originators as well, as HW readers know well. Hearing the hedgies talk about scratch-and-dent nowadays sounds eerily familiar to Wall Street's former chorus line:
"Most people will tell you there's no such thing as a bad loan, just a bad price,'' said Thomas McCarthy, co-head of loan sales at Carlton Group Ltd., a New York-based real estate investment-banking firm.
All of which begs an extremely interesting question: can hedge funds do subprime better than Wall Street? Update: Tanta at Calculated Risk doesn't think so.