You unwittingly used the "exception fallacy"... Making a conclusion about a large group on the basis of exceptional cases... Which, ** by definition **, renders your arguement FALSE. Perhaps you could take a course in Basic Logic at your local Community College. The Math or Philosophy department might offer something appropriate.
Everyone throws this word "regulate" around....exactly what are you talking about??? Fraud, theft and other illegal acts are punishable, if convicted, by fines and/or jail time....Worldcom and Enron were large public companies listed on the NYSE....a very regulated enterprise....didn't help... EXACTLY what would you regulate regarding a hedge fund??? Tell them what to buy/sell??? Mutual funds are nothing more than glorified savings accounts.... SteveD
The issue that needs to be addressed isn't who is harmed if a hedge fund blows up - clearly these are vehicles, which are by there very nature complex and targeted to not only rich people, but people who it assumed are fully conscious of (and capable of understanding) the risk involved. What ought to be addressed the effect of hedge funds on the US markets. Does active hedge fund trading lead to more short-term volatility, which hurts mutual funds who can't get short? Can it be shown that hedge fund involvement acts as a catalyst that leads to the overextension of moves in sectors and stocks (energy, metals) creating speculative bubbles to which the public is drawn? As the pool of hedge fund AUM increases, the questions should not be concerning the wealthy investors, but rather the externalities generated from a) thier style of trading and b) the consequent effect of those styles on regulated equity entities. If hedge funds get ANY edge by fading rallies in order to trap the mutual funds into selling into weakness, then clearly, it hurts the American public if such moves are manufactured solely for that purpose by that group (hedge funds).
eagle488-----Nick Leeson worked at Barings Bank, not at Barings Hedge Fund. Pension funds allocate very small percentages of their assets to hedge funds. A "blow up" still wouldn't and shouldn't wipe out too much of pension fund's assets.
While I believe hedge funds should be regulated, no regulation will be effective in preventing future hedge fund collapses. As in the case with Amaranth, it did not commit any crime in their trading activities, their losses come from bad mgmt and risk oversight, it seemed. It is also substantially easier for hedge funds to avoid any type of regulation by going strictly off-shore, maintaining mostly OTC type of trading, etc. Fact remains that hedge funds now generates a large portion of wall street revenues (and therefore profits), and the wall street firms would go to a great distance to prevent the revenue from moving. The true question with hedge funds is transparency. Large institutional investors such as pension funds, FoFs, investment trusts, need and should expect some level of transparency with respect to the strategies that the funds are deploying, and have the sophistication to maintain a risk profile of the entire alternative investment holdings it has. Yet, few of the large institutional investors have that level of transparency. I believe in the long run, institutional investors would realize that there is "value" associated with transparency, and would factor the value into their desire for alpha.
yet Economic Darwinism does not solve everything. with so much private money being indirectly in those funds, and after LTCM and this recent natural gas cowboy i would think it needs "regulation". but having said that, this is not as easy as it sounds. HF serve important efficiency functions as well. the real problem is that most h-funds i know are making the markets"better" in every possible meaning of the word and it is just about maybe 1% or 2% that are "difficult". but that is the same in corporate world. usually governments do not interfer, just when the guys get too big. could be the same here. above USDbn1 in positions you have to report to a central agency. and they judge whether you are allowed to gain further capital or not. regulating has to reflect the sophistication of the underlying strategies. it should be much more based on risk figures than on things like leverage or shorting ability. what i heard so far about regluating HF was mostly nonsense. but i still think Tobin is a reasonable concept ... ... though i am clearly talking 'gainst my book here ...
Yes, they should be regulated by the people who put money into them. If people are too stupid to make the right choices regarding their money, then why should we think that their choices of who to vote for are any better? Maybe we should start regulating government too? If people are smart enough to vote and take the consequences, they are smart enough to invest some of their money in greedy gogo funds and take the losses when they get it wrong.
Hedge fund managers do go to jail. You're the typical clueless moron who can't do a bit of research to justify your claims. Go to the Bureau of Prisons Web site and type in "David M Mobley", "Charles Harris", etc. They're doing some serious time.