The following is from www.zerohedge.com.  This piece is so profound that a reprint is required:

The SEC passes regulation that only STRENGTHENS the case to own Gold

Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote…

…Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC’s just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: “We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares.” Too bad investors’ hardships considerations ended up being completely irrelevant.

Anyone who sees this regulation and feels safe leaving their money in money market funds needs to have their head examined. The “intent” is to prevent a “run” on money market funds when the next crisis hits. Essentially the passage of that regulation signals the high probability of such a crisis happening.

As alluded to in the post, the rate on 1-month T-bills has gone negative today. Think about what this means. When a big investor is willing to invest short term money and have returned less money than was invested just 30 days ago, it tells us that the investor is more concerned about getting his money back than he is about making money on his money. The investor is essentially paying a small fee to insure that his cash is returned with little loss (30-day T-bills would be considered riskless since the Gov’t can print money to honor the claim). Think about the signal from big investors that is being given here about the perception of systemic risk and the probability of systemic failure. The rate on 30-day bills went negative for quite some time before the collapse of Lehman and AIG.

This phenomenon only strengthens the case that investors should be putting as much as they can into gold and silver as vehicles for protecting and preserving wealth. When you own gold, you are not subjected to, and victimized by, the bad decisions and moral hazards being implemented by our policymakers, many of whom are puppets for the big banks who fund their positions of leadership (see today’s Congressional inquisition of Geithner and Paulson). When you own physical gold in your own possession (or a trusted custodian), your investment does not have any risk of counterparty claim AND you have no Government/SEC restrictions placed on your investment, like the SEC regulation just passed.

I will end with a quote from none other than the king of fiat money, Alan Greenspan, who said on September 9th, 2009: “gold still holds reign over the financial system as the ultimate source of payment.” Keep this in mind when you get your next investment statement from your broker or advisor.

As Gary and I discuss this issue another thought occurs that bares scrutiny.  All are aware of the massive debt load this country sags under.  The Fed has made it clear rates will remain low for an extended period.  However, other methods are required to support the Treasury bond market and effectively keep rates from rising when worldwide ability to support said debt becomes increasingly dubious.  We pose the question:  Are the rule changes on the $3+trillion money market business designed to force conservative money directly into treasuries? Will we see in details of future treasury auctions an increase in the amount purchased by “households” ?

The answers to these questions are unpleasant to ponder and only time will reveal the secrets.  While your mind churns, read the next story and see how it fits into the puzzle.

SEC says more changes for money-market funds – WSJ

WSJ reports money-market funds could be forced to pay out less interest under new federal rules designed to make them sturdier. With memories still raw from the 2008 meltdown of Reserve Primary Fund, the SEC released rules on Wednesday that require funds to hold more liquid and higher-quality assets and disclose the value of their assets per share more frequently. The trade-off: These safeguards also will put pressure on yields that are already near zero. The changes likely will reduce yields by about 0.10 percentage point, said Pete Crane, president of Crane Data. This isn’t good news for money-fund sponsors already suffering from redemptions because of their low rates. Investors pulled about $540 billion out of money-market mutual funds last year, bringing assets to $3.3 trillion, according to Crane.

Tags: Fed, Geithner, gold, money market funds, SEC

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Reposted from “Hedge Fund Regulation: It’s Back” on the Intralinks.com Blog.

And this time it’s taking private equity and venture capital with it. First, let’s quickly rewind to 2006, when hedge funds throughout the U.S. were completing their ADV and implementing technology to retain their e-mails and documents. At the time, they were anticipating having to register with the SEC under the Investment Advisers Act of 1940. Enter Phil Goldstein of Bulldog Investors, who lives up to the company moniker by suing the SEC and to the surprise of everyone-wins.

The movement to regulate hedge funds lies dormant for several years, until the fall of 2008, when Wachovia and Merrill Lynch are listed for sale on eBay. This time around the government is smarter. They introduce an amendment to the 1940 act called the Private Fund Investment Advisers Registration Act of 2009 and, just to be safe, throw PE and VC firms under the bus along with hedge funds.

The 2009 Act eliminates the private adviser exemption that funds relied on to avoid regulation. It also takes step to ensure that the Phil Goldstein’s of the world don’t reappear by granting the SEC enhanced authority to define terms in the 2009 Act. (Note: Goldstein successfully claimed that the SEC exceeded its rule making authority in 2006.)

Recently, a lot of attention has been given to the Private Fund Investment Advisers Registration Act’s requirement that advisers report their positions, off-balance sheet borrowing and assets under management in an effort to identify systemic risk. There’s less clarity concerning the government’s proclamation that “the SEC should be given expanded authority to promote transparency in disclosures to investors.” Sounds a bit open ended, doesn’t it?

Read the rest of this entry »

Tags: Business, hedge fund, Investing, Investment Advisers Act of 1940, Private equity, SEC, U.S. Securities and Exchange Commission, Venture capital

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As early as next week, the Obama administration is expected to unveil plans to dismantle parts of the U.S. Securities and Exchange Commission in a regulatory reorganization. A proposal, still believed by many to be in draft form, is rumored to reallocate regulatory supervision of the financial titans — those institutions deemed too large to fail — to the Federal Reserve. Other items expected to be stripped from SEC oversight include consumer finance products such as mutual funds. A regulatory reorganization is premature and inconsistent with other actions taken on Capital Hill.

On February 26, 2009, the Obama administration announced plans to boost the SEC’s budget by 13%. The SEC has been underfinanced for almost two decades and as a result, understaffed. It will take time to both hire and train new staff even after the new budget goes into effect in fiscal 2010. Nonetheless, the economic crisis was not a function of the gaffe involving Madoff. The economic crisis is a result, in part, of the real estate bubble, caused by exceptionally long periods of low interest rates, a decision driven by the Federal Reserve.

Another culprit, Fannie Mae and Freddie Mac — thank you Congress. Sorry, but everyone does not deserve to own a home. If you cannot afford to pay for it, don’t buy it. If you’re a lender and they cannot afford to pay for it, don’t extend credit. Our economy was drunk on the American consumer’s excess and we are now experiencing the hangover. Point is, there is no regulatory agency nor are any of our elected officials without blood on their hands. Each has contributed to the economic crisis. The SEC has a long history of and experience in monitoring and prosecuting the financial industry. Over the next 12 months the SEC will continue to dramatically recreate and improve itself as the budget increases allow the SEC to hire and train new staff and the new Chairwoman, Mary Schapiro continues to implement her plan. We all want the economy to improve, but recognize that haste makes waste. Allow the budget to kick in and provide the Chairwoman the opportunity to do her job.

Tags: Bernard Madoff, Fannie Mae, Federal Reserve System, Freddie Mac, Mary Schapiro, SEC, U.S. Securities and Exchange Commission

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Hedge fund regulation has long been a subject of debate, with the SEC pushing for tighter restrictions and managers doing all they can to avoid it. Both stances are understandable. Managers are known for their ambiguity. They provide just enough information to investors, but usually leave the tedious information about specific strategy details and asset allocation to themselves. The federal government and SEC claim to be looking out for the investor.

After the dozens of crimes involving hedge fund fraud over the last decade and the millions of dollars bilked from investors, the SEC rationalizes that somebody should step in to quell this epidemic of smooth talking swindlers. For that matter, even reputable names like the one time Bear Stearns don’t always adhere to the best practices.

Two hedge fund managers at Bear who are responsible for the implosion of two billion dollar funds swore to investors that the fund was doing fantastic. Performance reports showed no worries. Only internal emails to each other highlighted the scare and warned of the future demise of the fund. Could tighter regulation have prevented that problem? The SEC says yes.

In 2006, the SEC passed a rule that all hedge funds would have to register as investment advisors, only to have it overturned by the federal government. Dozens of high profile hedge funds wrote letters explaining why hedge fund regulation would result in more bad than good and that the SEC was overstepping the boundaries of its jurisdiction. Others argued that investors in hedge funds are highly sophisticated and they don’t need protecting. There are already rules set in place as to who may invest in a hedge fund, and as long as the investor knows there is risk involved, it is ultimately his decision.

Federalism then forced the arguments into the state’s hands, while some states pushed for tighter regulations and others like New York and Connecticut opted against it. After California called for stricter measures, it was ultimately overturned earlier this year after many prominent hedge funds expressed concerns that regulations would only push hedge funders into other states while taking their vast incomes and purchasing power with them.

One of the reasons that managers oppose greater transparency is the need for secrecy in their strategy. Since hedge funds may entertain a wide variety of strategies and combination of strategies, managers are very reluctant to let others view their moneymaker. Once a strategy is exposed, other managers may follow suit leading to the drying up of the waterhole so to speak. Particular strategies are the product of the brilliance behind the manager and other integral members of the staff and therefore do not want to be given up.

Also, since most hedge fund strategies are so complex, many investors might not understand the entirety of it anyways. Why disclose something that would only aid in confusion? Another reason is the obvious need for the non-disclosure of price. Buyers typically want to buy at the price you paid for it, not under the circumstances where you are going to make a killing off what they pay.

Size also correlates to the amount of transparency involved. Smaller, newer funds may have to disclose more information in order to attract capital and new investors. They may have to be entirely open on where investments are going and how they are allocating the cash. Larger, more established hedge funds are a different story. They may have an abundance of capital and are therefore not concerned with attracting new investors. If this is the case and the money is already locked up, they may become very secretive and start investing in riskier securities or use outlandish strategies to start reaping high returns in a short time frame.

But what is the investor’s role in all of this? Do they typically side with the openness pushed for by the SEC or the hush hush tendencies of hedge fund managers? One might think this is an obvious answer, with investors wanting to know exactly where their millions are going. But recent trends show just the opposite. Apparently, when it comes to hedge funds, trust is the key word.

Managers that have worked in the industry for years generally have a vast number of contacts and have gained the trust of many affluent individuals. I doubt that John Paulson, the man whose hedge fund has returned billions for investors, has to sit down and convince people of his accolades. If trust is directly related to experience, then established managers should have no problem recruiting investors.

Regulation or not, it is ultimately up to the investor to make the final decision. The SEC will never stop funds from collapsing, no matter how much light they shed on them. If hedge funds could promise massive returns and no losses, then everybody would invest. Reward only comes with risk. It always shocks me when investors are dismayed over an asset freeze. This is a real and distinct possibility that you knew could possibly happen going into the fund. Not that I think it’s fair or right. Keeping someone from their own money seems somewhat illogical. But still, it’s a pretty common practice. Some hedge funders just want to ride a bad wave out in the market and want to focus on strategy rather than dealing with withdraws and the liquidity crunch that would ensue. Unfortunately, a lot of the times, a redemption freeze is a precursor to the fund’s closing. These are things to think about. An investor in a hedge fund holds a certain responsibility.

Some choose to spend the money and perform a due diligence check. This is a smart idea and will raise any red flags in the manager’s past. Others choose to bypass this slightly expensive process and take faith in the manager. Whatever sleuthing they choose to participate in, the investor is always going to be exposed to risk. But the lure of the $3 trillion hedge fund industry and the very real possibility of massive returns will always ensure that there is no shortage in interest.

Tags: hedge fund managers, investor, Not Categorized, regulations, SEC, strategies

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On March 4, 2008, the Securities and Exchange Commission (SEC) announced proposed changes to Regulation S-P (“Reg S-P”), the regulation governing the privacy and protection of customer information. A copy of the proposing release is available on the SEC’s website at www.sec.gov/rules/proposed.shtml.

If adopted as proposed, the changes, designed to enhance the protection of customers’ nonpublic personal information, will undoubtedly cause firms in the securities industry to add additional infrastructure to comply with the new regulations . Additionally, the proposed changes to Reg S-P permit employees of securities firms to maintain certain limited customer information when switching between securities firms. The comment period on the proposed regulations runs through May 12, 2008.

Full overview and summary of proposed changes availabled via http://www.thompsonhine.com/publications/publication1402.html.

Tags: Regulation S-P, SEC

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