Hedging risk a big earnings issue?

Hedging is a risky business. The bottom line is that it's really hard. We've said it before; there is fine line between hedging and speculating. I'm not sure anyone can lay out the full range of hedging techniques that top banks have employed. But more people are convinced that the to banks may have to own up to some failed hedges soon, according to MarketWatch. At a simple level, they may have bet against the ABX and other derivative indexes, only to watch them rally. They may have bought CDS on various leveraged loans or CDOs, only to see those swaps tank in value as the underlying securities rallied. This likely will be a big issue when second quarter earnings come out.

For more:
- here's the MarketWatch article

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