Hedge funds have been nominated as a prime culprit in the current financial disaster. European governments, in particular, seem keen to impose greater regulation on hedge funds, including more transparency and compliance requirements. In fact, this is will be one of the main deliverables they seek at the G20 summit on April 2nd.
I’m not opposed to stronger regulation, and hedge funds have obviously disappointed investors – especially with their illiquidity under pressure. But are hedge funds really responsible for the depth of the crisis? They were present at the scene of the crime, in terms of buying and trading what we now call “toxic assets,” but surely their role was minor relative to supposedly “regulated” US and European banks.
Of course, many hedge funds have closed down in the past six months, but have any actually failed to repay loans to banks? I’m searching for examples.
And in terms of political power, during the fall or today, how many hedge funds add up to the influence of Goldman Sachs?
If the debate on Diane Rehm’s show at 11am this morning (current link) is about hedge funds (and private equity) vs. regulated banks as causes of the crisis, I’m taking the banks.