Yesterday the SEC voted 3-2 to decide how much money bankers and hedge fund managers could make. Brilliant. That shows faith in the free market doesn’t it? Before Main Street jumps for joy-remember, if government can regulate how much the rich bankers make, they can tell everyone what they should make too.
This is Big Brother watching you. Would the crash of 2008 been averted if you knew how much hedge fund or bankers made? Would it have been averted if they were limited by what they made?
The answer to both questions is a resounding “No”.
The roots of the crash were housed in the offices of Fannie Mae and Freddie Mac. The kindling was chipped up in the Federal Reserve. Congress enabled, and the financial institutions watered and grew the tree. The free market chopped it down.
The problem with government is that it will never blame itself for any problem. Government will rarely take action to correct itself. This is why we have the duplicity of all those government programs uncovered yesterday. Anyone think there is really a way to “fix” Obamacare, short of total repeal?
Anyone answering yes to that last question doesn’t believe in markets, and believes in the power of big government. You’d feel comfortable in a socialist, centrally controlled system.
Even when someone that believes in big government speaks about changing things, they always end with a caveat. ”But”, “And”, and then a phrase that limits the amount of change. Ending the policy invites blame and admission of failure.
Bankers on Wall Street and Hedge Fund managers can make big money. They can also lose it. Believe me, if you are trading and taking risk, it’s really easy to lose a lot of money in a hurry. No trader ever walked on a trading floor guaranteed to make money. There are more hedge fund managers that lose money than make it. It’s just not as glamorous to write about the small losers. But it’s also important to note, they are making a lot of money for investors. The hedgies and bankers don’t make money if their investors don’t make money.
The other thing that you should know is that it’s not cheap to run and set up a hedge fund. There are high fixed costs. Legal fees. Plus, the fund is dealing with “other people’s money”. Hedge funds are accountable to their clients-which are all experienced investors. It’s not like the investors in a hedge fund just crawled out from under a rock. Additionally, the managers of the hedge fund should have their personal money put into the fund. Their personal wealth is at stake. Ask Dick Fuld what it was like to be long Lehman stock with it crashing all around him.
What the SEC just did was vote to make it tougher to find good talent at banks and hedge funds. Because they set limits on the size of funds by delineating which funds were subject to reporting and which were not. If I was a savvy manager, I’d only let my fund grow so big. Then establish another one. Problem is now costs are increased, and it’s tougher to get in and out of trades. Market liquidity is compromised, raising trading costs for everyone. Of course, there is also no benefit to the marketplace with the increased intensity of regulation.
The SEC is better off not regulating the hedge fund industry at all. Just ferret out the Bernie Maddof’s. Wait, they were too busy surfing porn to follow the Maddof tips they were given.
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