Population Statistic: Read. React. Repeat.
Wednesday, September 20, 2021

Well, maybe not just yet. But the fallout from Amaranth’s $3-5 billion bleeding over its faulty bet on gas futures includes, predictably, the first murmurs of a Federal crackdown on the shadowy financial underworld that is hedge funds.

And it ain’t because Daddy Warbucks is feeling the pain:

Amaranth may be a catalyst for more regulatory oversight because the company exposed pensions funds to its losses, said Scott Meyers, chair of the litigation practice group at Chicago-based law firm Levenfeld Pearlstein.

“Before hedge funds were the province of the super wealthy and there was feeling that they can protect themselves,” Meyers said. “Now you have a number of pension funds involved [in the hedge fund industry] and that will be hitting regular Americans in the pocketbook.”

Meyers said those are the type of people the government will seek to protect by bringing hedge funds under the regulatory umbrella.

There’s an inevitability to this, naturally. The hedge managers figured the risk was large when they opened up the country club to the less-monied players. So this gestation toward regulation fits into my cynical worldview quite nicely:

True, there’s silly money in hedge funds, and wherever they want to plant themselves, they’ll recruit talent to come along with them. But these funds’ super-secret MO is a ticking timebomb; eventually, their financial manipulations are going to burn the wrong people, and Congress will come down hard on them. Even limited collateral damage would reduce them to little more than glorified investment-consultant boutiques, and that kind of setup doesn’t need much in staffing. I think everyone involved senses this, and are just playing out the string until the hammer falls.

It’s going to take a bit more than Amaranth to bring the noise; the political climate right now (i.e., a Republican in the White House) alone ensures the leash on the SEC watchdogs stays put. But I think we can mark this as the beginning of the end, somewhere about five years down the road.

I hear the faint sound, from the general direction of Connecticut, of golden parachutes ripping open…

by Costa Tsiokos, Wed 09/20/2006 07:23 PM
Category: Business
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