Arguments Against Hedge Funds | More Regulation?

Against Hedge Funds

Arguments Against Hedge Funds

Here is a short opinion piece on how American should "stand up against hedge funds."

ONE of the problems that occur when a bankrupt ideology trumps sensible governance is that sensible governance doesn't always follow once the bankrupt ideology is exposed.

This is now a clear danger for Wall Street as the unfolding financial crisis continues to illuminate the idiocies of deregulated, anything-goes capitalism.

Last week was a vintage one, with revelations of misconduct and breach of trust at the ratings agencies, followed by the era-defining mea culpa of former Federal Reserve chairman Alan Greenspan, who now admits that his theories on the self-correcting characteristics of free markets were twaddle. Welcome though it was to get all this in the open, it was unfortunate that it occurred in Washington before the Henry Waxman-chaired House committee on government oversight and reform.

Waxman and Democrat partner in crime Barney Frank, chairman of the House financial services committee, have been among the chief agents in the demonising of Wall Street on Capitol Hill.

The more blood they get in their nostrils, the more their authoritarian tendencies seem to be aroused. Letters Frank sent out on Friday are a case in point.

The letters were prompted by a New York Times article about two hedge funds opposed to Washington's plan to refinance troubled homeowners into government-insured mortgages.

The program, which has always been voluntary, is predicated on investors agreeing to take a substantial haircut on their mortgage-backed investments.

The hedge funds, Greenwich Financial Services and Braddock Financial Corporation, have instructed the servicers of their mortgages not to comply with the government program, on the grounds that it is against the best interest of their investors.

So Frank sent off letters expressing his outrage. They were co-signed by five other Democrat committee chairs: the capital markets, insurance and government sponsored enterprises sub-committee chairman Paul Kanjorski; the financial institutions and consumer credit sub-committee chairwoman Carolyn Maloney; the housing and community opportunity sub-committee chairwoman Maxine Waters; the international monetary policy trade and technology chairman Luis Gutierrez; and the oversight and investigations sub-committee chairman Melvin Watt.

"Your decision is a serious threat to our efforts to respond to the current economic crisis and we strongly urge you to reverse it," Frank wrote.

"Given the importance of this to the economy and to what it means for future regulatory efforts, we have set a hearing for November 12 and we invite you now to testify.

"We believe it is essential to our policymaking function for you to appear at such a hearing and if this cannot be arranged on a voluntary basis, we will pursue other steps."

Frank went on to say that hedge funds had "flourished" for most of the past decade and that to oppose measures clearly in the national interest was "deeply troubling" and would have "serious implications" for the rules by which hedge funds would operate in the future.

Frank also wrote to the Managed Funds Association saying he believed existing law allowed for mortgage modification in cases where the losses would be less than in a foreclosure, and thus in the national interest.

"For hedge funds, which have been the beneficiary of a lack of regulations and a very permissive attitude, now to put obstacles in the way of this important national policy is intolerable," Frank said. Source

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