That’s right folks; you’ve read the headline correctly. According to the European Union’s top parliamentarian, hedge funds are not to blame for the worst financial crisis in a generation. Nevertheless, he continued, to save us from the evil that they do, in the future hedge funds need to be regulated the way the banks are.
I am shocked, shocked, I say, that a person of such high standing would dare say such a thing in public, let alone publish the comment in a report that went around the globe. But it’s true, hedge funds, in case you’re wondering, are not to blame for the credit market crisis, the failure of Lehman Brothers, the massive foreclosures, the fire sale of Bear Stearns, the sagging economy or even the Yankees’ winning the World Series. Nevertheless, according to Jean-Paul Gauzes’ report, hedge fund managers should be brought under control, their pay should be restricted, their use of leverage should be limited and they should be subject to strict monitoring so as not to run afoul of these new rules. To read about the report, click here. To read about Mr. Gauzes, click here.
I’m not sure whether he’s right or wrong.
I am sure of this, however. As the powers-that-be both here and abroad spend significant amount of time and energy trying to curb the way hedge funds operate, they seem to be missing a crucial piece to the credit-crisis puzzle: the people.
The reason the hedge fund industry exploded over the last few years is because people demanded products that zig when the market zags. Investors of all shapes and sizes wanted hedge funds; investment managers brought them to the market for investment dollars. Some were good, and some were bad, but most delivered on their promises.
The same cannot be said for all the easy credit providers currently dealing with defaulting loans and foreclosures at record levels. People wanted cars, boats, homes and sundry other items and the banks found a way to fulfill their wants, with little or no regard for the borrower’s ability to repay the loans.
When the banks ran dry, they went to their rich Uncle Sam for help.
When the hedge funds went dry, their investors and mangers lost everything. No bailout for them.
Bankers in the United States work in one of the most regulated industries in the world and still they needed to be saved from themselves. All this has been made clear in the never-ending coverage of the credit crisis, and yet hedge funds are the focus of new regulation.
I just don’t get it. What am I missing?
Regulation and the future of the hedge fund industry are just two of the topics we’ll be discussing December 15 on theHedgeAnswers Teleconference. Be part of the discussion. Register today!
For those celebrating Thanksgiving, enjoy it. For those not, have a good Thursday.