Do we really need any more evidence that hedge funds should be regulated or even outlawed altogether? How many blowups does it take for us to realize that unregulated greed in the name of “free market” demagoguery does not work for working people and the broader economy.
The U.S. economy is failing for three main reasons. First, the increasing reliance on the use of leverage was a ticking time bomb that finally went off and decimated the balance sheets of banks and financial institutions, not just in the U.S. but around the world. Second, the invention of exotic securities, derivatives and other financial shenanigans by financial wizards at investment banks which bear zero correlation to economic value creation or worker productivity. And third, excessive influence of corporations and their lobbyists in the regulatory process. In all three cases, hedge funds have been the biggest culprits of these practices which not only put their investors at risk – like retiree savings and philanthropic foundations – but also taxpayers since it is they who end of having to foot the bill for the economic calamity that lies in the wake of the destruction.
Sure, the SEC may have missed the mark – perhaps on more than one occasion – in catching Bernard Madoff’s $50 billion ponzi scheme, but let’s not vilify the policeman for a crime committed by a criminal. For years, the SEC has been an underfunded agency devoid of real leadership (before Cox, there was the equally worthless Donaldson and Pitt) which has been unwilling to fully protect investors and instead ceded authority over and over again to the business community. It’s time to put a stop to these disastrous investment vehicles. Hedge funds are equal opportunity abusers; they hurt wealthy people, institutional investors, retirees and taxpayers and drain valuable resources from the government. Let’s take a stand and say enough is enough.
Solving this economic calamity will require efforts on many fronts. For starters, the Obama administration can help empower shareholders, the SEC and the DOJ to hold corporations and money managers accountable to society. Less regulation is not the solution; it’s the problem. I hope Summers, Rubin and other leftovers from the Clinton years who are now part of Obama’s inner circle have come to see the failure of their past aversion to responsible regulation of Wall Street. These luminaries can start on their road to redemption by cutting out the most cancerous tumor in our financial system. We will all be better for it.
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