Don't Buy Into This Fantasy

Sorry, but I am not buying into the "hedge funds in trouble" theme. I have now read about the demise of hedge funds about a gazillion times in articles and, like Wall Street layoffs, this theme is chimerical. It isn't happening; that's the real story.

Think about it: You can count on one hand all of the hedge funds that have gone bust. None of them is really famous. The ones that have blown up have tended to have regulatory issues, not performance issues.

That's not to say that the performance of many of the funds is subpar. It truly is. What it really says -- as is often the case -- is that the hedge funds have done their usual super-duper sales jobs on the poor institutions that have committed funds, perhaps because consultants blessed them, perhaps because of personal ties or perhaps because of records that were shoot-the-lights-out once (when the funds were managing less money) but are now a distant memory.

As someone who was in the hedge fund game, I am always amazed at how stupid money can be. That it would stay in some of these funds that have opaque junk in them -- that it would not want to beat others out the door (prisoners' dilemma?) -- is incredible.

But , other than the Bear Stearns (BSC - commentary - Cramer's Take) funds, where there were truly no assets left after the leverage, and the funds that were Sowood, what have been the big losers here? Goldman Sachs (GS - commentary - Cramer's Take)? Still going strong, despite unfathomably bad performance. What keeps these clients in? What far-ranging power, what pull? What nonsense?

Of course it's a lot of fun to write these demise articles. There's some real schadenfreude out there, which reminds me, when is there going to be another article trashing Eddie Lampert of Sears Holdings (SHLD - commentary - Cramer's Take)?

But until I see many many funds disappearing because of performance, not because of lies and cheating, I am going to continue to marvel that there is so much money being conned by so few.

At the time of publication, Cramer was long Goldman Sachs and Sears Holdings.

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