Kill The Bad Hedge Funds & Regulate the Rest

HF Quote of the Year

"Kill The Bad Funds & Regulate the Rest"

Interesting post over at the FT - discussing the regulations of hedge funds within both the UK and US. Hedge Funds are taking much of the blame for recent market activity and new regulations will probably continue to roll out over the next 18 months. My take - there will be more regulation but far more on banks than hedge funds. I believe hedge funds will come out of this crises stronger than ever as more easily defined banks are tied to ever tightening capital requirements and oversight. Here is an excerpt from the article mentioned above:


"…kill the bad Hedge Funds + heavily regulate the rest."

That’s Dick Fuld, recounting the position of the US Treasury towards hedge funds. The phrase comes from an email between Fuld and Lehman’s general counsel, Thomas Russo, made public by congress last Monday.

It’s breathtaking not because it shows just how fixated and narrow-minded Lehman’s management were when it came to blaming all their woes on hedge funds - a fact already well known - but because it seems to show the US Treasury were thinking the same way too.

Little wonder, one supposes, when you think about it.

Paulson is as much the product of a sclerotic, class-ridden and arrogant banking fraternity as Fuld was. The US Treasury - just like Lehman - has spent months holding onto the mantra that the banks are not to blame. Fear and fear alone was causing trouble for the banks, was the parroted line. The whole wrong-headed architecture of the Tarp was prefaced on the same worldview: more liquidity and more confidence was needed, not more capital. As Felix Salmon at Market Movers writes:

"America’s banks — and the world’s, for that matter — have had de facto unlimited access to very cheap Fed liquidity for many months now. That hasn’t induced them to lend."

It has taken Paulson two long weeks to come around to the idea that the banks need recapitalising. That’s two painful weeks to face up to the fact that actually, the banks’ problems were not mere fictions conjured by the scurrilous iconoclasts of Greenwich, CT, but were real, palpable, and destabilising.

And yet, it seems, the hedge funds are still in the target sights of regulators. Read More...

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