How can a hedge fund levered 4/1 make money in sub-prime loans. Wouldn't the interest expense negate spread?

I don't understand how a hedge fund can leverage into a position in low yielding asset and make any money. Where are they getting ultra cheap money?

Hedge funds are real sneaky. 4 to 1 is real conservative for them. Some are 10 to 1. What they can do is borrow money in Japan at 1.5% interest and invest it is sub-prime loans that they thought were paying 9+%. Sort of seemed like a good deal at the time, especially since S&P had them rated as investment grade. Darn. I guess they srewed up. Now Uncle is going to have to bail all of them out and the banks that lent them the money too. Guess who is going to wind up footing the bill? You guessed it. The same suckers who will foot the bill for the Iraq invasion.

U sound intelligent enough - that Hedge fund is likely to shut down soon. If you have mortgage lenders going bankrupt and record loan defaults - others reporting delinquencies on a notch above subprime - I don't think the interest spread is a main priority today - Get out tonight- and if you work there better have your resume updated.