Case Against Hedge Fund Regulation
It was interesting to watch the testimony last week during the congressional hearings, the hedge fund managers were generally open to additional regulation but of course not to the point of disrupting their businesses. It would seem from these talks hedge fund managers are most concerned with ensuring that whatever regulations are put into place are done so only after thorough research has been completed.
Virtually everyone who has ever worked in the investment industry is against widespread and rigorous regulation of hedge funds and many hedge funds would cease to exist if they were forced to report all of their trades to the public. Here is a short snippet from a VC blog commenting on the regulation of hedge funds:
Regulation is necessary to keep a fair marketplace intact and to ensure that rules are followed. Regulation cannot control greed or risk. You cannot regulate speculation. You cannot regulate irrational exuberance. And you definitely cannot regulate bearishness or short selling. If I want to bet the farm that a company is going down or going up, I am allowed to do so by the rules of the SEC and by the margin limits of my brokerage. Any additional regulation would amount to nothing more than a Sarbanes-Oxley type of thing for the hedge fund industry. And you know what SarOx did for the new issues market.Read more from our Hedge Fund Regulation Corner.
All regulation will do is make people leave. And this is not the time to get dollars flowing out of the USA. Financiers are smart enough to figure out a legal way around the rules.
If hedge funds had anything to do with the bringing down of the market then perhaps it is good they were around. They did all Americans a favor by exposing the overleveraging of the financial system and have helped weed out the companies who should not survive. In every cycle there must be a boom and a bust. We are definitely in the bust but it is all a set up for the next wave. If the government sets up too many rules, then there will not be another booming wave. Or perhaps it will occur somewhere else.