Friday, November 14, 2008

High tension, Great performances, an almost Emmy award winning saga......Hedge Fund Hearings on C-Span.

Honestly, the Cspan channel on T.V. has become the most engaging channel in recent times. I mean it has 'shows' that have drama, emotion, high stakes as well as glamour, not to mention the interesting lineup of financial industry 'celebrities'. Fox and gang can learn a thing or two from these hearings. No wonder there are blogs devoted to C-Span events (check out cspanjunkie)

In yesterday's episode of the star studded House Oversight Committee ‘show’, the hearing focused on the role of the hedge fund industry in the current financial crisis. The House Oversight Committee invited several advisors including a past SEC chairman along with a handful of hedge fund managers to investigate the role of the hedge fund industry in the current financial crisis.

This has been their general pattern of 'questioning'. They go with the advisory panel first, trying to get a sense of what can be done to correct the problems and then they hone in on the (supposed) 'perpetrators'. Of course there are those from both these sets of panels who will refuse to answer or provide any information feigning either ignorance (case in point, Mr Willumstad ex-AIG) or the Law professor (Joseph Bankman, Stanford University) from yesterday's panel who claimed most of the questions posed to him were outside his scope of expertise. Hmm...note to about the 'dead wood' at these hearings...might make for some hilarious s(n)ide notes...more on s(n)ide notes later…

Anyway, expect changes in the regulatory landscape for hedge funds soon. Some of the often repeated advice from the advisory panel that came out (except of course, good ol' Prof Bankman):

1.There is a need for Federal oversight over hedge funds. The logic behind this is that hedge fund operations directly impact liquidity and the Federal Reserve Board is directly responsible for the state of liquidity in the markets.

2. The SEC should be able to able to inspect the information systems particularly the risk management systems of hedge funds and report the information coming out of this function directly to the Federal Reserve.

3. The Federal Reserve Board should impose 'Capital Adequacy Norms requirements' or 'Maximum leverage constraints' for all those 'too big to fail' type financial institutions.

4. To address large scale short selling activities by hedge funds, there was common consensus, that "under certain conditions", hedge funds should report their short positions to the regulators. Not to the public mind you, but to the regulators. This information would be kept confidential to the public at large.

S(n)idenotes **(refer footnote for meaning)

During the 5 minute presentation by the hedge fund managers, what came out was their desperate need to communicate to the House Oversight Committee and ultimately to the public watching this program, how their or their fund's incomes were not unreasonable or how they were completely in synch with the needs of the'common man'.

We had Mr.Philip Falcone (Senior Managing Partner of Harbinger Capital and ranked 707 on the world’s Billionaires List for 2008 by Forbes) depicting his deprived childhood- being one of nine children in a small remote town in Minnesota. Of course, the fact that, today, he calls some swanky dig in New York City his home is somehow not relevant..

Another hedge fund manager, Mr.John Paulson of Paulson & Co. Inc went to great lengths to explain his fund's squeaky clean and upfront policies with clients.

As expected, most of them were defensive, blaming the banking sector for most of the credit and financial markets' woes.
(According to one of these managers, the hedge fund industry is not as leveraged as the banking industry and Mr.Paulson most definitely supports additional regulation for these troubled industries which would not include regulating hedge funds.)

When questioned on potential regulation for the hedge fund industry, most hedge fund managers were quick to respond that the "financial tsunami" had occurred in the industries that were already regulated and not the hedge fund industry! I would challenge these hedge fund managers to say that with a straight face to all those displaced hedge fund employees who had to be laid off, precisely because of this financial crisis . That is ‘far removed from reality’ for you.

Anyway, if you want more of this drama, grab some popcorn and see the whole recorded shebang here.

**(s(n)idenotes (noun) : snide sidenotes)

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