Programming note: Money Stuff will be off tomorrow, back on Monday.
One important thing that investment banks do is lend money to hedge funds to buy stocks. This is risky: If the stocks go down, the hedge fund might not repay the loans, and then the bank might lose money. So a central question of risk management is whether the hedge fund has posted enough collateral — that is, that the stocks it owns are worth significantly more than the money the bank has loaned it, so that if the stocks go down the bank will not lose money.
