Tax Warning to Hedge Funds Heading Overseas To Avoid Subprime Risks

July 14, 2008

The ongoing credit crisis saga has taken a tremendous toll on hedge funds due to their exposure to structured mortgage-backed assets-and for those heading or parsing trades overseas to avoid U.S. taxes: Beware. The contracting demand for mortgage-backed securities-which had been dramatically overvalued by brokers who pushed more than 600 varieties of these assets to hedge fund managers through unregulated, highly leveraged repos-precipitated the tightening of unsecured term funding.

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