Hedge fund math does not compute

Calculated Risk wonders how a retired investor thought he could get a low risk investment yielding 12% from a Bear Stearns hedge fund invested in mortgages when mortgages weren’t paying anywhere close to 12%. Thus, the hedge fund must have been leveraged and thus highly risky.

And in fact it was. The investor lost everything. What was he thinking? What was anyone involved in this thinking? That money could be generated risk-free endlessly from highly risky, leveraged “investments” apparently. Which is the classic definition of a bubble.

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