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Investment Advisor – Taking further steps toward financial services regulatory reform, the House Financial Services Committee held a hearing October 6 to discuss three legislative discussion drafts put forth by Rep. Paul Kanjorski (D-Pennsylvania) on investor protection, registration of advisors to private funds, and creating a national office of insurance.
Kanjorski, ranking member on the Committee and chairman of the committee’s subcommittee on capital markets, said during his opening statement that his three bills “work to reverse” the trend of excessive deregulation that has existed and caused the financial crisis “by closing loopholes and fixing problems in our broken regulatory structure, especially in our securities and insurance markets.” As Congress works through these drafts and other pieces of financial services reform, Kanjorski said, “We should listen to common-sense ideas and seek out consensus where it exists. I am therefore open to making changes to these draft bills.” However, he said, “We must ensure that special interests do not weaken particular solutions to the point of becoming toothless.”
The first draft bill, the Investor Protection Act, would expand the SEC’s powers and require broker/dealers to adhere to the same fiduciary standard of care as advisors; would increase the SEC’s ability to reward whistleblowers whose tips lead to successful enforcement actions; would allow the Commission to adopt rules to bar the inclusion of mandatory arbitration clauses in securities contracts; would expand on the proposals put forth by the Administration by closing loopholes identified by the Madoff and Stanford Financial frauds; and would double the Commission’s funding over the next five years.
Reuters – A global hedge fund industry group backs U.S. plans to require hedge fund advisers to register with federal regulators, a move that would align U.S. rules with those in the UK.
The Alternative Investment Management Association, in remarks to be delivered to a U.S. congressional committee on Thursday, also said registration creates a dialogue between the hedge fund adviser and supervisor that supports greater understanding of hedge fund activities.
The London-based group, which represents more than 1,100 hedge fund firms in more than 40 countries, is among those due to testify to the capital markets subcommittee of the House Financial Services Committee. Other witnesses on the registration issue include the Teacher’s Retirement System of Texas and well-known short-seller James Chanos.
New York (HedgeCo.Net) – If Treasury Secretary Timothy Geithner gets his way, hedge funds and private equity firms will be placed under the supervision of the federal government.
“Over the past 18 months, we have faced the most severe global financial crisis in generations,” Geithner said at the House Financial Services Committee hearing on Thursday, adding that “comprehensive reform” is required. “Not modest repairs at the margin, but new rules of the game.”
Geithner supports a mandatory requirement for hedge funds and other large money management firms to register with the Securities and Exchange Commission, an issue that has been at the forefront of political debate recently. Hedge funds would also have to keep the SEC updated on their trades and strategies.
A systemic risk regulator would be imposed that could force these firms to raise capital or halt borrowing. The regulator may also seize hedge funds or other non-bank entities if they felt it was necessary, though it was unclear which agencies would be responsible for handling that task.
“You don’t want to vest in any single institution such broad powers,” he explained.
The Obama administration has been vocal about their desire to regulate the $1 trillion hedge fund industry. After two massive hedge funds within Bear Stearns collapsed in the summer of 2007, eventually leading to the demise of the bank, many members of Congress started supporting regulation with the notion that hedge funds have a direct impact on our economy.
Also backing the argument was the monumental damage caused by credit default swaps and the lack of regulation behind them, as was the case with American International Group.
“The days when a major insurance company could bet the house on credit default swaps with no one watching and no credible backing to protect the company or taxpayers much end,” Geithner added, referring to the AIG debacle.
Under the proposed regulation, the market on which these credit default swaps and other derivatives would be regulated for the first time.
The SEC has tried previously to impose a registration requirement on hedge funds, only to have it overturned by a federal appeals court in 2006.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Houston Chronicle – Treasury Secretary Timothy Geithner will ask Congress to bring large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules.
The Treasury chief will present his proposed framework at a House Financial Services Committee hearing in Washington today. Under the new so-called rules of the road, the government would get powers to seize and wind down any financial company big enough to destabilize the banking system.
The Obama administration is counting on public anger over the taxpayer-financed rescues of American International Group Inc., Bear Stearns Cos. and other firms to help it win approval for the changes, which could be the most sweeping since the 1930s. Policy makers want to improve the oversight of the financial system now rather than wait until the crisis is over, administration officials said on condition of anonymity.
New York (HedgeCo.Net) – As the national outrage over bonuses paid to AIG execs reaches epic proportions, U.S. Treasury Secretary Timothy Geithner promised the government will recoup the $165 million that was shelled out using bailout money.
“We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of retention rewards just paid,” Geithner wrote, after claiming it would be difficult to physically take back the bonuses. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.”
Arguing that the U.S. government essentially owns a majority of the failed insurance giant, Chairman of the House Financial Services Committee Barney Frank said, “I think the time has to exercise our ownership rights, and then say, as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’”
House Speaker Nancy Pelosi agreed, saying she would urge members to draft legislation this week that could recoup frivolous spending from taxpayer-funded aid.
“Most appallingly, while millions of Americans struggle through this economy, those who have received the largest measure of taxpayer assistance from the Treasury Department have shown no restraint,” Pelosi said.
New York Senator Charles Schumer warned that if those bonuses were not returned to their “rightful owners,” then Congress would pass laws to tax those bonuses “at a very high rate.” Senate Finance Committee members agreed, proposing taxes as high as 70 percent on those payments.
While disdain over the issue may have caused Barack Obama to act swiftly, the nearly decimated public opinion on bailouts may pose a problem for institutions seeking government funds going forward. AIG has so far received $173 billion of taxpayer-funded federal assistance.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. www.hedgefundlounge.com, www.hedgefundtools.com, and www.hedgefundemployment.com
Connecticut Post – It was with amusement that I read that freshman U.S. Rep. Jim Himes, D-4, will now be a member of the House Financial Services Committee. Why? Because of his expertise? Does anyone realize that he was trained and made millions of dollars at Goldman Sachs? Yes, one of the firms that is responsible for the mess this country is in with exotic investments and subprime mortgages and plenty of greed!
We will never learn and the taxpayers will get fleeced again. Himes can work closely with Rep. Barney Frank and Sens. Christopher J. Dodd and Charles Schumer and others who managed to create quite a mess with a lack of oversight on subprime mortgages that were originated and sold in pieces on Wall Street.
New York (HedgeCo.Net) – Board members of General Motors met this past weekend to go over a proposal that will be presented to Congress today in hopes of securing up to $12 billion in emergency funding. The money is part of a larger, $25 billion bailout plan that GM, Ford and Chrysler have been seeking.
After originally rejecting the plan, Congress told the big three auto makers to present a revised version of their request, with detailed information on how they will use the money to turn their companies around.
Chrysler, who has vocalized their need for an alliance with GM and Ford in order to weather the financial crisis, is also busy putting the finishing touches on their revised plan. “Chrysler is fine-tuning its original plan to meet the reset requite from congressional leadership,” said spokesperson for the company, Lori McTavish. “The company’s board will be part of the final review process leading up to Tuesday’s submission.”
The automakers are expected to present a plan that focuses more on fuel-saving new technology that could eventually yield 35 miles per gallon on their vehicles, in addition to slashing executive pay and bonuses. Ford, who is least troubled by financial woes out of the three, is expected to only seek a line of credit from the government.
The automakers have faced increased reluctance from many members of Congress, after months of government handouts to major financial institutionals. Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid recently sent a letter to the three executives, saying that they must be "making significant sacrifices and major changes to their way of doing business," which will be presented in today’s plan.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – The debate on whether or not to grant the big three Detroit automakers billions in bailout funds continues as Democratic leaders set a timetable for the companies to present a “credible restructuring plan.”
In a letter sent Friday to GM’s Rick Wagoner, Ford’s Alan Mulally and Chrysler’s Robert Nardelli, Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid outlined what the auto executives must do to receive the rescue they are desperately seeking.
"The American people – deserve to see a plan that is accountable to taxpayers and that is viable for the long-term," the letter said. The democratic leaders also insisted that the auto executives must be "making significant sacrifices and major changes to their way of doing business."
With the majority of media attention focusing on the fact that each of the three men flew private jets to Washington and proceeded to beg Congress for $25 billion in bailout money, “significant sacrifices” could mean perhaps flying commercial next time.
The letter states that the companies must provide a detailed assessment of their finances, along with a request for an amount that they feel would bring them to “long-term viability.” The December 2nd deadline leaves plenty of time for heated debates on what seems to be the most prevalent issue in the current economic crisis.
Some republicans, like Alabama Senator Richard Shelby, are reluctant to provide aid to what he feels is already a lost cause. In a recent CNN interview, Shelby argued that even $25 billion would not save the automakers. He went on to say that perhaps $50 billion or even $100 billion would not be enough. His take is that unless these companies have “new management, new innovation and new products,” they are going to sink, no matter how much of an infusion of cash they receive.
The Democratic leaders said the companies have failed to convince Congress that they have a coherent strategy to stay afloat once any funding was granted. The letter urges the automakers to bring to the table a long-term plan with reasonable objectives for repayment.
Should the companies receive any taxpayer-funded loans, those would receive “senior status,” meaning they would have to be paid off before any other company debt. The Democrats are hoping that Congress will reconvene the second week in December to decide if and how there will be a rescue package for the three automakers.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – U.S. Representative Barney Frank is walking through Statuary Hall in the Capitol, a portrait of rumples and wrinkles. His left shirttail hangs out over his belt. Reporters and photographers are hounding him. Cameras are whirring. Questions are being shouted.
“How’s it going?” one reporter shouts.
“If you let me get in, I can find out,” Frank says, before disappearing into House Speaker Nancy Pelosi’s office to begin negotiations with Treasury Secretary Henry Paulson and a handful of lawmakers on a $700 billion legislative package to rescue troubled financial institutions.
New York (HedgeCo.Net) – Senate leaders will vote today on the $700 billion bailout package, after some key changes were implemented including tax breaks and higher limits for insured bank deposits.
The new limit proposals are something that both candidates and President Bush agree upon, leading some to believe that the bailout package, in its current incarnation, will finally be passed through Congress.
Though the details of the plan are not readily available, lawmakers are hoping that the changes will appeal to those republicans who were knocked the first proposal, while keeping the democrats who are otherwise against generous tax incentives for businesses.
“It has been determined, in our judgment, this is the best thing to move forward,” said Democratic Senator Harry Reid of Nevada.
While the bill has certain new elements to it, including extensions of unemployment along with tax credits for low income home-owners, the basic principle of the government purchasing $700 billion worth of bad debt and eventually re-selling them remains the same. The bill also has some room for new additions, though Christopher Dodd, Chairman of the Senate Banking Committee warns, “Opening this up all over again to other things may doom it.”
Markets tanked following the rejection of the initial proposal on Monday, with the Dow Jones industrial average plummeting 778 points. Though the markets regained some vigor on Tuesday, many lawmakers felt a strong urgency to get a plan passed.
The FDIC currently insures up to $100,000 per account. The new proposal might see an increase in that amount to $250,000.
House Speaker Nancy Pelosi is confident about the new plan, telling President Bush that “Working together, we are confident we will pass a responsible bill in the very near future.”
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
