Soros warns 'hedge funds will be decimated'
George Soros tells lawmakers in Washington that crisis will wipe out three quarters of the money hedge funds manage
George Soros, the investor who made $1 billion betting against sterling in 1992 (AtW's question - can he legally visit UK now without right of entry refused?), warned that "hedge funds will be decimated" as a result of the global financial meltdown and the crisis will wipe out as much as three quarters of the money they manage.
His comments were made as he fielded hostile accusations from lawmakers in Washington that hedge fund managers have enjoyed "unimaginable success" even though they are "virtually unregulated".
Ordered to testify before the House Oversight and Government Reform Committee, a host of the world's wealthiest and most secretive hedge fund managers answered questions about their business as lawmakers tried to work out who was to blame for America's financial crisis.
John Paulson, who runs a hedge fund which bears his name and who was one of the first investors to bet housing prices could decline on a national basis last year, Philip Falcone, senior managing director of Harbinger Capital Partners Funds, James Simons, who runs the Renaissance funds, Kenneth Griffin, Citadel Investment Group Chief Executive, and Mr Soros, chairman of Soros Fund Management, were all summoned to testify at the hearing about the role of hedge funds, their tax status and regulation.
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Henry Waxman, Committee Chairman and California Democrat, said he had singled them out because each earned on average more than $1 billion each last year.
Mr Waxman said that they had each benefited from the US tax system which allowed them to be taxed at the lower capital gains tax rate, rather than as income.
He said: "That means at least some portions of their earnings could be taxed at rates as low as 15 percent. That's a lower tax rate than many school teachers, firefighters, or plumbers pay.''
The hedge fund industry- which is estimated to control about $2.5 trillion worth of assets, mainly outside regulatory supervision - has been blamed for volatility in stock markets and destabilising a number of banks. Hedge funds have also been accused of seeking to trash companies by short-selling their stock - a type of trade where the dealer benefits if the share price falls. (AtW's comment: what a misconception - hedge funds in reality are upstanding corporate citizens who invest long term into products and services of tomorrow, we all owe them our lifes... not!
)
The first cracks on Wall Street started to appear in June 2007 when UBS and Bear Stearns both admitted to massive losses within their own hedge funds. UBS was forced to close its hedge funds and Bear Stearns had to bail out its own.
As Washington lawmakers debate how to prevent another colossal financial crisis, some are calling for very heavy regulation of hedge funds.
However, Mr Soros cautioned against "going overboard with regulation.'' (AtW's comment: these and other comments (including writing books) Soros should have been making from inside triple max prison serving life sentence without parole - starting from 1992. If that happened back then, current crisis (and couple more before) may not have happened.)
He said: "Excessive deregulation has inflicted enormous losses on the general public and there is a real danger that the pendulum will swing too far the other way. The bubble has now burst and hedge funds will be decimated. It would be a grave mistake to add to the forced liquidation currently dislocating markets by ill-considered or punitive regulations.''
Hedge funds have enticed an increasing number of ordinary investors, pension funds and university endowment funds — meaning millions of Americans unwittingly invest in hedge funds indirectly.
Tom Davis of Virginia, the Committee’s senior Republican said that hedge funds “now pose a very public peril when the bets go bad."
Hedge funds, which are delivering their worst-ever returns this year, have been widely blamed for contributing to the downfall of both Bear Stearns and Lehman Brothers.
But Mr Falcone defended the industry: “The behaviour of institutions in several financial sectors contributed to the recent crisis, but, in my view, the hedge fund sector was not among them.”
He also defended short-selling, arguing it was a valuable component of financial markets and did not drive companies out of business. (AtW's comment: yeah riiiiiiiiiiiighttttttttttttt...) Two months ago, the SEC briefly banned money managers from shorting 1,000 financial stocks.
David Ruder, a former chairman of the US Securities and Exchange Commission which in recent years tried and failed to force hedge funds to register with the agency, also downplayed the industry’s role in the current credit crisis.
He said: "Although hedge funds have been active participants in the financial markets during the past years, they do not seem to have played a major role in the events precipitating the crisis."
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George Soros tells lawmakers in Washington that crisis will wipe out three quarters of the money hedge funds manage
George Soros, the investor who made $1 billion betting against sterling in 1992 (AtW's question - can he legally visit UK now without right of entry refused?), warned that "hedge funds will be decimated" as a result of the global financial meltdown and the crisis will wipe out as much as three quarters of the money they manage.
His comments were made as he fielded hostile accusations from lawmakers in Washington that hedge fund managers have enjoyed "unimaginable success" even though they are "virtually unregulated".
Ordered to testify before the House Oversight and Government Reform Committee, a host of the world's wealthiest and most secretive hedge fund managers answered questions about their business as lawmakers tried to work out who was to blame for America's financial crisis.
John Paulson, who runs a hedge fund which bears his name and who was one of the first investors to bet housing prices could decline on a national basis last year, Philip Falcone, senior managing director of Harbinger Capital Partners Funds, James Simons, who runs the Renaissance funds, Kenneth Griffin, Citadel Investment Group Chief Executive, and Mr Soros, chairman of Soros Fund Management, were all summoned to testify at the hearing about the role of hedge funds, their tax status and regulation.
Related Links
Henry Waxman, Committee Chairman and California Democrat, said he had singled them out because each earned on average more than $1 billion each last year.
Mr Waxman said that they had each benefited from the US tax system which allowed them to be taxed at the lower capital gains tax rate, rather than as income.
He said: "That means at least some portions of their earnings could be taxed at rates as low as 15 percent. That's a lower tax rate than many school teachers, firefighters, or plumbers pay.''
The hedge fund industry- which is estimated to control about $2.5 trillion worth of assets, mainly outside regulatory supervision - has been blamed for volatility in stock markets and destabilising a number of banks. Hedge funds have also been accused of seeking to trash companies by short-selling their stock - a type of trade where the dealer benefits if the share price falls. (AtW's comment: what a misconception - hedge funds in reality are upstanding corporate citizens who invest long term into products and services of tomorrow, we all owe them our lifes... not!
)The first cracks on Wall Street started to appear in June 2007 when UBS and Bear Stearns both admitted to massive losses within their own hedge funds. UBS was forced to close its hedge funds and Bear Stearns had to bail out its own.
As Washington lawmakers debate how to prevent another colossal financial crisis, some are calling for very heavy regulation of hedge funds.
However, Mr Soros cautioned against "going overboard with regulation.'' (AtW's comment: these and other comments (including writing books) Soros should have been making from inside triple max prison serving life sentence without parole - starting from 1992. If that happened back then, current crisis (and couple more before) may not have happened.)
He said: "Excessive deregulation has inflicted enormous losses on the general public and there is a real danger that the pendulum will swing too far the other way. The bubble has now burst and hedge funds will be decimated. It would be a grave mistake to add to the forced liquidation currently dislocating markets by ill-considered or punitive regulations.''
Hedge funds have enticed an increasing number of ordinary investors, pension funds and university endowment funds — meaning millions of Americans unwittingly invest in hedge funds indirectly.
Tom Davis of Virginia, the Committee’s senior Republican said that hedge funds “now pose a very public peril when the bets go bad."
Hedge funds, which are delivering their worst-ever returns this year, have been widely blamed for contributing to the downfall of both Bear Stearns and Lehman Brothers.
But Mr Falcone defended the industry: “The behaviour of institutions in several financial sectors contributed to the recent crisis, but, in my view, the hedge fund sector was not among them.”
He also defended short-selling, arguing it was a valuable component of financial markets and did not drive companies out of business. (AtW's comment: yeah riiiiiiiiiiiighttttttttttttt...) Two months ago, the SEC briefly banned money managers from shorting 1,000 financial stocks.
David Ruder, a former chairman of the US Securities and Exchange Commission which in recent years tried and failed to force hedge funds to register with the agency, also downplayed the industry’s role in the current credit crisis.
He said: "Although hedge funds have been active participants in the financial markets during the past years, they do not seem to have played a major role in the events precipitating the crisis."
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decimated'
the time machine did work!
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