Panic' May Force Market Shutdown, Fund Failures By Alexis Xydias and Camilla Hall 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. Policy makers delivered global coordinated rate cuts and bailed out banks this month to try and stem the crisis, stopping short of trading suspensions in the Group of Seven industrialized nations. Emmanuel Roman, the co-chief executive officer at GLG Partners Inc., predicted at the same event 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. 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. Darwinian’ Crisis
In a fairly Darwinian manner, many hedge funds will simply disappear,'' Roman said. 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. 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 advisor 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.’’ To contact the reporters for this story: Alexis Xydias in London at email@example.com; Camilla Hall in London at firstname.lastname@example.org.