本文发表在 rolia.net 枫下论坛* NOVEMBER 13, 2008, 3:25 P.M. ET
By JUDITH BURNS and JESSICA HOLZER
WASHINGTON – Hedge-fund managers are defending their industry at a congressional hearing Thursday, testifying that hedge funds didn't cause the current economic crisis and some saying they shouldn't be subject to stricter regulation in the future.
However, experts on a panel of witnesses argued that regulators need to tighten oversight of the $2 trillion industry, with one calling for tax increases on the industry.
"When hedge funds become too big to fail, that poses a problem for the financial system," said Andrew Lo, Director of the Massachusetts Institute of Technology Laboratory for Financial Engineering.
House Oversight and Government Reform Committee Chairman Henry Waxman (D., Calif.) called the hearing to examine the role of hedge funds in the financial markets. He invited five hedge fund managers who earned an average of $1 billion last year.
In opening remarks, Waxman called hedge funds "virtually unregulated" and noted that the industry has swelled over the last decade. "Regulators aren't even certain how many hedge funds exist or how much money they control," he said.
Rep. Tom Davis of Virginia, the ranking Republican on the panel, said hedge fund losses are more an effect, rather than a cause, of the financial crisis. But he predicted that the lightly regulated investment pools would now endure more scrutiny from investors and regulators.
"Going forward, hedge funds will have to take account of a reduced tolerance by investors and governments for an unregulated parallel financial universe of exotic derivatives run by faceless quants that exerts unpredictable gravitational forces on the marketplace," Mr. Davis said in opening remarks.
Mr. Lo said hedge funds should be required to file confidential reports to regulators detailing their positions, and he urged Congress to create a financial-wreckage squad to issue public findings on the causes of market failings, similar to reports on plane crashes.
Hedge fund managers defended their industry, pointing to other causes of the financial stress.
James Simons, chairman of Renaissance Technologies LLC, blamed regulators who took a "hands-off position" toward investment banks and credit default swaps, a kind of insurance against defaults by borrowers. He said credit-rating agencies were at fault for giving high ratings to shaky investments. He maintains that hedge funds weren't part of the problem.
George Soros of Soros Fund Management, James Simons of Renaissance Technologies, John Paulson of Paulson & Co., Philip Falcone of Harbinger Capital Partners, and Kenneth Griffin of Citadel Investment Group at Thursday's Capitol Hill hearing.
Hedge funds, which are lightly regulated investment pools for wealthy individuals and institutions, "did not cause the financial crisis and are in fact helping to mitigate its damage," saving taxpayers' money, according to testimony by Houman Shadab, a senior research fellow at the Mercatus Center at George Mason University.
He said tightening regulation on hedge funds now could increase economic instability, making matters worse.
But former Securities and Exchange Commission Chairman David Ruder, now a Northwestern University Law School professor, called for closer regulation of hedge funds, and some hedge fund managers agreed.
Harbinger Capital Partners Fund co-founder and Senior Managing Director Philip Falcone said he supports more public disclosure by hedge funds and the creation of a public clearing house for derivatives trading, particularly in credit default swaps.
Citadel Investment Group CEO Kenneth Griffin endorsed the clearing house approach, saying it is a "straightforward solution" to the lack of information on such swaps and would "dramatically reduce systemic risk."
Committee Democrats criticized the tax rates paid by hedge fund managers, an issue that dominated the congressional debate over tax reform last year.
Mr. Waxman, whose panel doesn't have jurisdiction over tax matters, said hedge funds receive tax breaks that "allow them to treat the vast majority of their income as capital gains."
Rep. Elijah Cummings (D., Md.) said, "I hope we can correct this injustice once and for all next year."
Managers of a broad array of partnerships pay capital gains rates, rather than ordinary income rates as high as 35%, on a portion of their pay, dubbed "carried interest."
For private equity managers who often make longer-term investments, the 15% long-term capital gains rate generally applies. However, hedge fund managers are more likely to hold investments for less than one year. Ordinary income rates apply to such investments.
Stanford law professor Joseph Bankman argued that the taxation of carried interest was neither fair nor efficient.
Billionaire investor George Soros presented a blow-by-blow account of the financial crisis and offered a bleak outlook for the economy. "A deep recession is inevitable and the possibility of a depression cannot be ruled out," he said. Mr. Soros argued that the events of recent months undercut what he called the prevailing theory of markets -- that they always return to equilibrium and that deviations are caused by random, external events.
Mr. Soros said the current crisis wasn't caused by an outside shock, such as a surge in energy prices, but by the financial system itself. He argued that a flawed theory of markets had been used to justify unbridled free-market capitalism and deregulation. He described his own theory, dubbed reflexivity. It says that financial markets present a distorted view of underlying reality, which affects market prices.
Write to Judith Burns at judith.burns@dowjones.com and Jessica Holzer at jessica.holzer@dowjones.com更多精彩文章及讨论，请光临枫下论坛 rolia.net
By JUDITH BURNS and JESSICA HOLZER
WASHINGTON – Hedge-fund managers are defending their industry at a congressional hearing Thursday, testifying that hedge funds didn't cause the current economic crisis and some saying they shouldn't be subject to stricter regulation in the future.
However, experts on a panel of witnesses argued that regulators need to tighten oversight of the $2 trillion industry, with one calling for tax increases on the industry.
"When hedge funds become too big to fail, that poses a problem for the financial system," said Andrew Lo, Director of the Massachusetts Institute of Technology Laboratory for Financial Engineering.
House Oversight and Government Reform Committee Chairman Henry Waxman (D., Calif.) called the hearing to examine the role of hedge funds in the financial markets. He invited five hedge fund managers who earned an average of $1 billion last year.
In opening remarks, Waxman called hedge funds "virtually unregulated" and noted that the industry has swelled over the last decade. "Regulators aren't even certain how many hedge funds exist or how much money they control," he said.
Rep. Tom Davis of Virginia, the ranking Republican on the panel, said hedge fund losses are more an effect, rather than a cause, of the financial crisis. But he predicted that the lightly regulated investment pools would now endure more scrutiny from investors and regulators.
"Going forward, hedge funds will have to take account of a reduced tolerance by investors and governments for an unregulated parallel financial universe of exotic derivatives run by faceless quants that exerts unpredictable gravitational forces on the marketplace," Mr. Davis said in opening remarks.
Mr. Lo said hedge funds should be required to file confidential reports to regulators detailing their positions, and he urged Congress to create a financial-wreckage squad to issue public findings on the causes of market failings, similar to reports on plane crashes.
Hedge fund managers defended their industry, pointing to other causes of the financial stress.
James Simons, chairman of Renaissance Technologies LLC, blamed regulators who took a "hands-off position" toward investment banks and credit default swaps, a kind of insurance against defaults by borrowers. He said credit-rating agencies were at fault for giving high ratings to shaky investments. He maintains that hedge funds weren't part of the problem.
George Soros of Soros Fund Management, James Simons of Renaissance Technologies, John Paulson of Paulson & Co., Philip Falcone of Harbinger Capital Partners, and Kenneth Griffin of Citadel Investment Group at Thursday's Capitol Hill hearing.
Hedge funds, which are lightly regulated investment pools for wealthy individuals and institutions, "did not cause the financial crisis and are in fact helping to mitigate its damage," saving taxpayers' money, according to testimony by Houman Shadab, a senior research fellow at the Mercatus Center at George Mason University.
He said tightening regulation on hedge funds now could increase economic instability, making matters worse.
But former Securities and Exchange Commission Chairman David Ruder, now a Northwestern University Law School professor, called for closer regulation of hedge funds, and some hedge fund managers agreed.
Harbinger Capital Partners Fund co-founder and Senior Managing Director Philip Falcone said he supports more public disclosure by hedge funds and the creation of a public clearing house for derivatives trading, particularly in credit default swaps.
Citadel Investment Group CEO Kenneth Griffin endorsed the clearing house approach, saying it is a "straightforward solution" to the lack of information on such swaps and would "dramatically reduce systemic risk."
Committee Democrats criticized the tax rates paid by hedge fund managers, an issue that dominated the congressional debate over tax reform last year.
Mr. Waxman, whose panel doesn't have jurisdiction over tax matters, said hedge funds receive tax breaks that "allow them to treat the vast majority of their income as capital gains."
Rep. Elijah Cummings (D., Md.) said, "I hope we can correct this injustice once and for all next year."
Managers of a broad array of partnerships pay capital gains rates, rather than ordinary income rates as high as 35%, on a portion of their pay, dubbed "carried interest."
For private equity managers who often make longer-term investments, the 15% long-term capital gains rate generally applies. However, hedge fund managers are more likely to hold investments for less than one year. Ordinary income rates apply to such investments.
Stanford law professor Joseph Bankman argued that the taxation of carried interest was neither fair nor efficient.
Billionaire investor George Soros presented a blow-by-blow account of the financial crisis and offered a bleak outlook for the economy. "A deep recession is inevitable and the possibility of a depression cannot be ruled out," he said. Mr. Soros argued that the events of recent months undercut what he called the prevailing theory of markets -- that they always return to equilibrium and that deviations are caused by random, external events.
Mr. Soros said the current crisis wasn't caused by an outside shock, such as a surge in energy prices, but by the financial system itself. He argued that a flawed theory of markets had been used to justify unbridled free-market capitalism and deregulation. He described his own theory, dubbed reflexivity. It says that financial markets present a distorted view of underlying reality, which affects market prices.
Write to Judith Burns at judith.burns@dowjones.com and Jessica Holzer at jessica.holzer@dowjones.com更多精彩文章及讨论，请光临枫下论坛 rolia.net