Hedge funds will make market selloff worse

As hedge funds search for capital to pay back bank loans they have taken to buy stocks and other financial instruments, they may not find anything to do other than sell their own holdings. According to The Wall Street Journal, investment banks think "between 10% and 20% of the hedge-fund industry's assets to be withdrawn by year end."

The hedge fund industry has $2 trillion in assets. So, what is the market to do?

One possible solution is to open the Fed borrowing window, which is available to banks and brokerages for short term loans at very low prices, to the hedge fund industry as well. Average people and many politicians would not like that idea, but faced with a liquidation of assets that could drive the DJIA down by hundreds more points, why hold out Federal Reserve aid from a part of the financial industry if it could help ruin the system further?

Greedy and rich hedge fund managers may not deserve any mercy, but the market may have to give them some or watch the liquidations of assets pull everyone's investment values down.

Douglas A. McIntyre is an editor at 247wallst.com.