Sleaziest liberal worm, Soros, finally slithers out of the post-election woodwork:
nytimes.com, November 13, 2008
WASHINGTON — Five prominent hedge fund managers, testifying Thursday before a House committee, said that they supported some additional regulation of their industry.
The managers — Philip A. Falcone, Kenneth C. Griffin, John Paulson, James Simons and George Soros — all said they would support rules that required hedge funds to provide information about their funds to a regulator, provided the information was not divulged to the public.
Their support of greater disclosure represented a significant change for an industry that has historically fought more regulation. But the managers, who were paid on average $1 billion last year, varied in their support of regulation. Mr. Soros, known for his liberal views, was the strongest supporter of rules to rein in the nearly $2 trillion industry. Mr. Griffin, the founder of Citadel Investment Group, was the most hesitant, saying that additional regulation was not needed but that he would “not be averse” to some additional disclosure that would not be made public.
The hearing, by the House Committee on Oversight and Government Reform, is part of a series of investigations into what went wrong in the financial crisis. Earlier on Thursday, two prominent academics testified that they believed hedge funds should face greater regulation.
The fund managers’ support for greater disclosure — though it would not be public disclosure — may surprise some peers. Hedge fund managers have generally shunned disclosure rules, and one manager successfully sued the government to block the Securities and Exchange Commission from requiring all hedge funds to register.
At the same time, the five disagreed over whether the tax treatment of their funds should be changed, and they disagreed on the need for restrictions on their use of leverage, or borrowed money.
Mr. Griffin, who has long indicated that his company will become a diversified financial services company, said that if hedge funds were pushed into a new “paradigm,” the rules must be made clear.
“So long as I know what the rules are, I can conduct my business to be well within the lines,” Mr. Griffin said.
After the hearing, some lawmakers said witnesses had made clear that hedge funds had the potential to cause risk to broader markets.
“All of them went on record in support of more regulation, all of them went on record in support of more transparency,” Representative Carolyn B. Maloney, a Democrat from New York, said.
It was less clear how the government would go about using additional disclosure from hedge funds. During the morning, Andrew Lo, a professor at the Sloan School of Management at the Massachusetts Institute of Technology, and David Ruder, a professor emeritus at Northwestern University School of Law, said hedge funds needed to disclose more information. But Mr. Lo went as far as to suggest that the information should be public, while Mr. Ruder, chairman of the S.E.C. in the late 1980s, said it should be kept confidential.
Mr. Lo, who has studied hedge funds for a decade, said more information was needed for him to determine how much risk hedge funds brought to the markets.
“The fact is that we cannot come to any firm conclusion because we simply don’t have the data,” said Mr. Lo, who is affiliated with an asset management company that manages several hedge funds. “Additional transparency, even now, will provide some sense of what we’re likely to see over the next year or two.”
The House committee asked the five managers to provide information about their most highly paid employees, their fund’s financial returns and their holdings of some mortgage assets. The committee also wanted e-mail messages about the tax treatment of their compensation.
A spokeswoman for the committee said earlier this week that the five managers submitted the information, and that the committee was still determining what to release.
One witness, Houman B. Shadab, a senior research fellow at the Mercatus Center at George Mason University, said that more disclosure could be harmful.
“When that type of information is created by regulators it creates a false sense of security among market participants that these risks are being adequately monitored and managed,” Mr. Shadab said.
Another issue was the tax treatment of hedge fund managers’ earnings. Currently, part of their earnings is taxed as capital gains, at a far lower rate than applies to ordinary income. Mr. Soros and Mr. Simons both supported taxing managers’ earnings as ordinary income. Mr. Griffin, Mr. Paulson and Mr. Falcone did not.
“You make a billion dollars, but your rate can be a as low as 15 percent,” said Representative Elijah E. Cummings, a Democrat of Maryland. “Is that fair?” |
