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Oct. 23 (Bloomberg) -- Hundreds of
hedge funds will fail and policy makers may need to shut
financial markets for a week or more as the crisis forces investors
to dump assets, New York University Professor Nouriel Roubini said.
``We've reached a situation of sheer panic,'' Roubini, who predicted
the financial crisis in 2006, said at a conference in London today.
``There will be massive dumping of assets,'' and ``hundreds of hedge
funds are going to go bust,'' he said.
Group of Seven policy makers have stopped short of market
suspensions to stem the crisis after the U.S. pledged on Oct. 14 to
invest about $125 billion in nine banks and the Federal Reserve led
a global coordinated move to cut interest rates on Oct. 8.
Emmanuel Roman, co-chief executive officer at GLG Partners Inc.,
said today that as many as 30 percent of hedge funds will close.
``Systemic risk has become bigger and bigger,'' Roubini said at
the Hedge 2008 conference. ``We're seeing the beginning of a run on
a big chunk of the hedge funds,'' and ``don't be surprised if policy
makers need to close down markets for a week or two in coming
days,'' he said.
Roubini predicted in July 2006 that the U.S. would enter an
economic recession. In February this year, he forecast a
``catastrophic'' financial meltdown that central bankers would fail
to prevent, leading to the bankruptcy of large banks exposed to
mortgages and a ``sharp drop'' in equities.
Bear, Lehman
The comments preceded the collapse of Bear Stearns & Cos. and
Lehman Brothers Holdings Inc. as well as the government seizure of
Freddie Mac and Fannie Mae. The
Dow
Jones Industrial Average, a benchmark for American equities, has
lost 37 percent this year, including its biggest daily drop in more
than twenty years on Oct. 15.
The Dow average rose 0.5 percent to 8563.42 as of 10:09 a.m.
today in New York.
Italian Prime Minister
Silvio Berlusconi roiled international markets on Oct. 10, first
saying world leaders were discussing shutting down global financial
exchanges, and then saying he didn't mean it.
``In a fairly Darwinian manner, many hedge funds will simply
disappear,'' Roman said, speaking at the same event as Roubini.
The hedge fund industry is stumbling through its worst year in
two decades and posted its biggest monthly drop for a decade in
September. Hedge funds are mostly private pools of capital whose
managers participate substantially in the profits from their
speculation on whether the price of assets will rise or fall.
`Very Ugly'
``Things are getting very ugly also in the emerging markets,''
Roubini said. ``We used to say when the U.S. catches a cold, the
rest of the world sneezes. Well, the U.S. now has chronic and
persistent pneumonia. It's becoming a mess in emerging markets.''
Developing nations' borrowing costs jumped to the highest in six
years today as Belarus joined Hungary, Ukraine and Pakistan in
seeking a bailout from the
International Monetary Fund to help weather frozen money markets
and a slump in commodities. Argentina risks defaulting for the
second time this decade.
``There are about a dozen emerging markets that are now in severe
financial trouble,'' Roubini said. ``Even a small country can have a
systemic effect on the global economy,'' he added. ``There is not
going to be enough IMF money to support them.''
Roubini, a former senior adviser to the U.S. Treasury Department,
earlier this month said that the world's biggest economy will suffer
its worst recession in 40 years.
``This is the worst financial crisis in the U.S., Europe and now
emerging markets that we've seen in a long time,'' Roubini said.
``Things will get much worse before they get better. I fear the
worst is ahead of us.''
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