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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.
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.
Boston Globe – US Representative Barney Frank yesterday staked out the next battlefront in the economic crisis gripping the world: more regulation of hedge funds, investment banks, and other financial institutions.
Frank, who heads the House Financial Services Committee, blamed a lack of strict oversight for the failures of Wall Street investment banks such as Bear Stearns Cos. and Lehman Brothers Holdings Inc., as well as dozens of subprime mortgage companies. He said hedge fund investments in arcane securities based on those mortgages deepened the crisis, which has spread worldwide. In contrast, heavily regulated commercial banks escaped the crisis largely unscathed, Frank said.
"The cause of this problem was a lack of financial regulation in the industry," the Massachusetts Democrat said at a Newton City Hall press conference, one of two events he held in the Boston area yesterday. "If the regulated institutions had made loans, we would not be in the crisis we’re in."
Reuters – Blaming lax regulation for what turn into the worst U.S. financial crisis since the Great Depression, Rep. Barney Frank vowed on Monday to police banks and hedge funds more actively to avoid future financial meltdowns.
Frank, the powerful chairman of the House Financial Services Committee who has been credited with largely shaping the $700 billion bailout plan, also said he expects the cost of to be much less.
Frank said next year’s agenda will include capping runaway executive compensation, imposing restrictions on certain financial instruments and regulating certain areas of the market that are current not restricted.
"It was the lack of regulation that led to this crisis … We have to step in and impose regulations that will not allow this to happen again," Frank, a Massachusetts Democrat, said at a news conference in Newton, Massachusetts.
