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Why are the Germans bashing hedge funds?

Robert Peston | 18:00 UK time, Friday, 14 May 2010

First week in power, and already the Cameron/Clegg government faces defeat in negotiations on new European Union rules for hedge funds.

But this is not a case of start as you mean to go on: it is not early evidence that the new administration will be more isolated in Europe than the previous one.

Had Labour been victorious in the general election, it would also have been mugged in the European Council.

Because the British position on hedge funds, for both Labour and the Con-Libs, is to defend what they see as relatively successful British businesses (albeit businesses where the legal domicile is usually the Cayman Islands); whereas a majority of other EU members, and notably the Germans, want to bash the hedgies.

As I've mentioned many times here, there is a widespread view on the continent that hedge funds somehow caused the credit crunch and financial crisis of 2008.

Which is an eccentric view, because even if it's challenging to characterise hedge funds as socially useful, the evidence is conclusive that when apportioning blame for the global financial debacle, hedgies were barely at the scene of the crime compared with many big banks (see my note Hedge funds as heroes for an assessment of what bad stuff can be laid at the door of hedge funds).

Also, many continental politicians and journos seem to believe that the current stresses and strains in the eurozone have been magnified by the supposedly heinous dumping and short-selling of government bonds by hedge funds.

But the biggest sellers of eurozone government bonds have been the trading desks of banks. And as those banks were bailed out by taxpayers - whereas hedge funds weren't - it is slightly odd that the fury of eurozone governments isn't directed against the giant banking groups, rather than the hedgies.

As a friend points out, the behaviour of some banks in trashing the bonds of over-indebted countries is particularly churlish, in that much of those frail countries' debts stems from the costs of bailing out the same banks: that'll teach us to rescue them.

As germanely, the proposed restrictions on hedge funds will have no effect on what they can buy or sell: a hedge fund based in New York will still be able to bet against Portuguese debt if it so chooses; the constraints would be about the kind of risks that a hedge fund that is based in Europe and raises money in Europe can take, not about the scope of trading by hedge funds as a global group of investors.

But even if it may not be wholly rational to beat up the hedgies, it's clear that a majority of EU members are minded to do just that. The new Chancellor, George Osborne, may make a brief show of being the hedgies' human shield at next week's ecofin meeting of European finance ministers, but he knows the votes are on the other side.

So on the reasonable assumption that the UK has lost, what's at stake?

Well a bit.

If hedge funds operating in London want to be able to raise money throughout Europe, they'll have to be domiciled in Europe, they'll have to be more transparent, they'll be subject to new limits on how much they can borrow, and they'll have to place their assets in safekeeping with a single so-called depository.

These are not trivial requirements and nor are they conspicuously benign.

The requirement for a single depository looks particularly weird, because it will concentrate the damage when a hedge fund collapses rather than disperse it.

If for example such a system had been operating globally two years ago, when hedge funds started to worry that their assets weren't safe at Lehman Bros, the run on Lehman by its hedge fund clients would have been even more devastating.

Also rules restricting the leverage or borrowing of hedge funds may not be completely bonkers. But the current draft of the leverage rules is vague - although it's already clear that they would be far more onerous than the leverage rules that apply to a class of institution far more important to our prosperity, the banks.

That said, London-based hedge funds may be able to escape the full impact of these new restrictions, because very few of them are - in a legal sense - British or European institutions; as I mentioned, most of them are domiciled in the Cayman Islands, to shelter the tax of their investors.

So if they insist on retaining Cayman as their official home, they may benefit from a waiver that would enable them to raise money via so-called private placements from professional investors in the UK, though not in the rest of Europe.

In other words, the choice facing London based hedge funds, broadly, is to circumscribe where they raise their money or be subject to much more red tape.

Which sounds more like an annoyance for them, rather than a disaster - and makes you wonder why Germany, France and the others are bothering.

Comments

Page 1 of 2

  • Comment number 1.

    Why Germany, France and the others are bothering? Domestic politics.

  • Comment number 2.

    Simple. The EU, notably Germans want to portray the hedgies as "The bad guys". It suits their political purpose. And their majority industries.
    Meanwhile the Brits want to portray the hedgies as "OKish" It suits their political purpose. And their majority industry.

    BTW who made most out of the VW/Porsche episode?

  • Comment number 3.

    "The behaviour of some banks in trashing the bonds of over-indebted countries is particularly churlish, in that much of those frail countries' debts stems from the costs of bailing out the same banks"

    Buying bonds is effectively lending money to the issuer. So what are you suggesting, that the bailed-out bank should lend money through the bond market to the countries who bailed them out by.. lending *them* money? How is that going to help anything? Why don't you just ask them to pay back the bail-out money?

  • Comment number 4.

    Fighting the hedgies at the EU court of German and French supremacy report lacks one vital comment - do NOT adopt the measures taht emanate from the unknown kingdom of eurobureaucracy. After all some rules are not adopted in the UK - namely the legal requirement to hav a complaints book at every cafe,bar,pub or restaurant, which is mandtory on the Continent. So just tell Brussels we will condut our business as we se fit and make Londion the escape centre for all the hedgies in Europe. PONTO FINALE

  • Comment number 5.

    Just like Hyenas and Sharks are an essential part of nature, so are the Hedge Funds and Stock Exchanges essential to our economy.

    By this logic they in turn need to be food for some others and financial institutions seem to be positioned at the top of the food chain so it is about time that Governments take action.

    Certainly, today, no-one loves the financial predators any more. Their era was the noughties when Socialist Brown and Blair who gave them free reign.

  • Comment number 6.

    The issue is that the banks and investments firms and now apparently the rating agencies can and do all work together to create these bubbles that provide a great deal of front end money. The probelm is they sell these conconcted instrucments that are created not to be understood and can easily be manipulated. They will create new instruments with new names if these are disolved. The problem is honesty and banking has shown that is not a part of their business plans. The only real changes that will make any impact are to reduce the size of banks as they can clearly stall any nation at any time by controling funds and secondly to hold the CEO and other top officers and board members personally responsible for any wrong doings, by being able to attach their personal wealth gained in such transactions and recover and disburse on behalf of those who suffer losses because of mis-repsentation of products and levels of risk. Until there is person reponsbilities are assigned they have no incentives to change.

  • Comment number 7.

    I'd regulate them as though they were handling Ebola. The banks too. Gambling simply isn't good for your or national well-being.

  • Comment number 8.

    I've already moved to Switzerland, but many other hedgies are coming over too - anecodotal evidence is that there is massive demand from UK buyers in Geneva.

    Short sighted position from the EU as always - remember your history: this is why the Eurobond market took off - offshore $ loan market a couple of decades back - that money/market never returned to the US.

    Before half the readers on this website cheer, waving goodbye/good ridance, remember the multipllier effect on 1) the local economy in rural areas (builders, electricans, gardeners), 2) accountants, lawyers professional services, 3) UK tax take.

    oh well. we didnt cause the problems (most of which are due to over spending by politicans). cheerio, and thanks for the fish!

  • Comment number 9.

    "hedgies were barely at the scene of the crime compared with many big banks"

    I can see the general (European if you want) point of view. It has to do with _speculation_. Maybe they are only small fish compared with the big banks (doing the _big_ shorting and speculation), but they are the main reason why the Glass-Steagall act was abolished in the first place: small, unregulated hedgie sharks started to scavenge banks' pray. And this is probably why reformers have to think twice to separate investment from retail banking.

    The solution is to regulate speculation in general and this will apply to all players big and small, hedge funds and banks.

  • Comment number 10.

    5. At 7:08pm on 14 May 2010, gruad999

    Blair and Brown played with the fiery monster created under Thatcher-Reagan economics.

  • Comment number 11.

    8. At 8:08pm on 14 May 2010, nilihist

    The multiplier effect is too weak (or does not exist) for us to care about - seems a few or your are still making a packet but unemployment has been increasing for quite a while now. Oh, and then there is that massive, growing gulf between the rich and the rest of us.

  • Comment number 12.

    Banks are essential to the capitalistic system, hedge funds are not. Rightly or wrongly, they are seen as many as leeches blood sucking from the financial system.

    Bank regulation is coming and 'Raganomics' and Mrs Thatcher's Financial Service Act are both going to be wound back. We must hope that there will not be an over reaction to the present crisis.

    Mike - Londoner in Barcelona

  • Comment number 13.

    am I being paranoid, or is this just one more backdoor move to shift Europe's financial and banking centre away from London. Divide and rule!

  • Comment number 14.

    Surely you are not angling for 'friends of hedge funds' or hedge funds R Us in this argument. I cant get worked up if the EU wants to beat up on hedge funds because I need to be reminded about what socially useful purpose they perform. It was the banks wot did it seems to be a mitigation for hedge funds but it is really the whole corrupt system of finance capital that needs challenging analysis.

  • Comment number 15.

    The main problem for the German Government is they enormous and on going costs of re-unification. Go to Berlin and see the number of project that remain unfinished or has just run into the sand.

    I guess that the German Chancellor has also at the back of her mind Hungary and other Central European states that will have to brought into the Euro over the next few years.

    This is not the situation to the West of Germany - France, Spain, Italy, Portugal and even Malta, whatever there problems are all already within the Eurozone.

    There is ever closer co.operation between France and Spain both within Europe and outside. Both aim to bring the Euromed countries, specifically, Turkey, Morocco and Algeria into the Union. They will also bring Russia in by the back door if not by the front and are building bridges as fast as they can.

    The world is changing very rapidly, the next concrete steps will probably be taken at the G20 meeting.

    We certainly live in very interesting times!

    Mike, Londoner in Barcelona.

  • Comment number 16.

    Hedge funds are irrelevant, it's uncontrolled fractional reserve banking that's the culprit.

  • Comment number 17.

    Why are the Germans bashing hedge funds?

    Er... 'cos they see them as a risk to the stability of the Euro, Euroland and the over-sized City of London being improperly and inadequately regulated and it suits their own culture and domestic politics and they.. the Germans... enjoy wielding their newly found power as 'guvnor of Europe'?

  • Comment number 18.

    Continuing my argument from the Paul Volcker Blog... (as it relates to this too)

    It is about the ability of large players in the financial community to create money outside of any control (and to play one country against another) that is why the Germans are so concerned about Hedgies (and we should be too).

    Whilst we put up with the situation these companies can exist outside of any control - which is the case at present and we have every justification, and so do the Germans, to be very concerned.

    This brings me back to the necessity of Exchange Control..... While the is no federal (or global) government capable of enforcing controls over these organisation we MUST do it at a national scale (FOR THERE IS NO OTHER WAY!). Hedge funds and indeed multinational casino banks and other financial institutions that operate across borders are beyond any enforceable control.

    They have shown that they will destroy themselves so that have to be constrained. We need national exchange control to ensure that speculation does not get out of hand, but more importantly so that the system is stable.

  • Comment number 19.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 20.

    8 nilihist - so the swiss are going to hoover up all the buyers in Europe .....

    Good luck to the swiss, there are pleanty more nilihists to fill the void, it won't remain a vacuum for long...... if you could teach a monkey to follow the rules and add up we could give them a go....

  • Comment number 21.

    Because Hedge Funds are no good for the global economy. See it like this: Walking into a bank with a loaded shotgun and demanding money may make a big profit for the face-masked entrepreneur, but it does absolutely nothing for the economy that we all rely on. Understand?

  • Comment number 22.

    21. At 01:20am on 15 May 2010, markus_uk wrote:
    Because Hedge Funds are no good for the global economy. See it like this: Walking into a bank with a loaded shotgun and demanding money may make a big profit for the face-masked entrepreneur, but it does absolutely nothing for the economy that we all rely on. Understand?
    ==============

    Actually the Hedge funds were right about HBOS, and it was the HBOS chairman who demanded money under false pretences from me, and sadly I gave it, next time I'll take note of the Hedge Funds.

  • Comment number 23.

    15. At 10:14pm on 14 May 2010, MikeE-BCN wrote:
    The main problem for the German Government is they enormous and on going costs of re-unification. Go to Berlin and see the number of project that remain unfinished or has just run into the sand.

    ====================


    Does that suggest that the German's want to ban hedge funds for the same reason that say, Train Set Man would have liked them banned, because they expose the lie that all is well? Even worse, are you saying Germany is running our of cash? Maybe Nihilist has a point.

  • Comment number 24.

    Here is an extract from Gavin Hewitt's blog

    "There are signs that belatedly leaders are understanding that the core of Europe's problem is debt and low growth. Quite simply most European countries are living beyond their means. The reckoning has arrived."

    now would 'realisation' be thanks to the Markets?

    Lets hope our Coalition of Blair clones can address our deficit, their initial attack on the simple parliamentary majority for a No Confidence vote doesn't fill me with hope (I suspect it is true to say that Labour probably couldn't have got away with that), I fear Brown may have left us even deeper in the Brown stuff than they thought, he certainly looked a relieved man as he left Downing street!

  • Comment number 25.

    Morning Robert,
    well it seems like everytime regulation is proposed, you, Robert, are briefed by some of your chums in the industry to lobby the masses to make the case that this is a bad idea.
    Say it isn't so Robert.
    As far as I'm concerned, if it's bad for the banks/hedge funds then it's good for me (the taxpayer). Germany has its capitalists as well and they don't seem too concerned at these proposals.
    Britain (and Mr Osborne) have to do some serious thinking about our relationship with the City and its money managers. The cosy, light regulation, free for all didn't work to Britains advantage. Time to try a new approach methinks.
    Mr Osborne should demand that all banks in receipt of tax payers money should repay that money as a first call on their balance sheet before any bonuses are distributed. This could easily be done by said banks buying back their own shares for cancellation from the Government. Net result is the share price will rise for all holders and we have a win-win situation.
    Don't you find it strange, Robert, that so far not ONE share in any bailed out bank has been redeemed (apart from some preference shares which were converted to common stock)?
    Back to the shorting of shares, didn't the banks (market makers) receive an exemption from the short trading rules imposed on the hedge funds?
    I will never accept that there is a justification for naked short selling and that this somehow provides a public service by making the company bet against fail more quickly.
    It certainly does seem that there are two sets of rules, one for the hedge funds and one for the banks and maybe therein lies the injustice?

  • Comment number 26.

    I am rather depressed by the unevenness of your current blog piece. Its almost if the activities of Paulson and Goldman Sachs can be excluded from our memories as they are not UK based. I do not want to muddy the waters particularly but suffice to say that the events in New York are showing a collusion of interests was occurring in New York to promote a mortgage bubble and some people/hedge funds/trading banks were smart enough not only to spot it but to also load the dice.

    My personal view is that there should be a crime of Economic Sabotage where damage to the economy is punishable. After all many actions are legal but in the totality lead to foreseeable damage. Now if the participants in the great bubble had all been of Russian or Chinese nationality I do not doubt that there would have been an enormous outcry but because it is a group of people only related by greed in some way it becomes a lesser evil. Funny that.

    You link to your other blog piece on why Hedgies are not bad where you say "The fact is that hundreds of hedge funds went bust over the past couple of years." Forgive me asking but as I can only recall under a score perhaps you could direct me to the source for your statement.

  • Comment number 27.

    Robert

    Your question is an easy one (for a change):

    In Biology/Psychology you call the hen's picking for the not existing corn a displacement activity; that's exactly what Merkel-Sarkozy and Co. are left with: picking for hot air avoiding any conflict with the Ackermann Gang.

    caw

  • Comment number 28.

    The ignorant Europeans blame the hedge funds and the ignorant British blame the banks when in truth the biggest culprits of the credit crisis were incompetent governments which enghineered a boom in housing and encouraged banks to lend money to people on low incomes to buy unaffordable housing that had been bumped up in price by immigration and governments setting interest rates too low for too long.

  • Comment number 29.

    Why are the Germans bashing hedge funds?

    lol
    My question would be

    Why is Robert Peston supporting a bunch of offshore wide boys.

    Offshore hedge funds are global financial parasites, actively seeking to make vast profits through market manipulation and instability by using derivatives and leveraging.

    Socially irresponsible organisations, it's strange he should be someone who supports these entities...very strange indeed.

  • Comment number 30.

    24. DevilsAdvocate wrote:

    "Lets hope our Coalition of Blair clones can address our deficit, their initial attack on the simple parliamentary majority for a No Confidence vote doesn't fill me with hope"

    There has been no attack on the simple parliamentary majority for a No Confidence vote - it is still a single vote majority and there are no proposals to change this. You need to properly research what actually is being proposed, and why this increases Parliamentary democracy.

    Sorry to disappoint you, but why let the facts get in the way of a good political attack?

  • Comment number 31.

    Changing the relationship between the markets and the rest of us is going to be a slow, painful process. Various governments will take single steps at different times, and each step will be criticised as attacking the wrong target, counterproductive, handing a competitive advantage to some other player, etc, etc. Some of the steps will in fact be just plain wrong. However, unless it happens the rest of us have to live in a system where everything we work for or work on can be trashed at a moment's notice. I for one have had enough of that.

    The best analogy I can come up with is the battle to curb the Trade Unions in the UK, which extended from ca 1970 to 1985. Grim, slow, lots of false steps and failures along the way, but entirely necessary.

  • Comment number 32.

    Peston talks about the Con-Libs. The right name for them is Con-Dems.

  • Comment number 33.

    8. At 8:08pm on 14 May 2010, nilihist wrote:
    I've already moved to Switzerland, but many other hedgies are coming over too - anecodotal evidence is that there is massive demand from UK buyers in Geneva.

    Short sighted position from the EU as always - remember your history: this is why the Eurobond market took off - offshore $ loan market a couple of decades back - that money/market never returned to the US.

    Before half the readers on this website cheer, waving goodbye/good ridance, remember the multipllier effect on 1) the local economy in rural areas (builders, electricans, gardeners), 2) accountants, lawyers professional services, 3) UK tax take.

    oh well. we didnt cause the problems (most of which are due to over spending by politicans). cheerio, and thanks for the fish!


    Good points nihilist. If Government and Management are careful (wont use that devalued word 'Prudent' ) then there is nothing for the Hedgies to feed on.

    The big problem is the voters own homes and no politician is going to raise interest rates to bring these assets back into line with affordability. (I say politicians because the independent BoE is another myth perpetrated by Brown).

    If you have interest rates at less than inflation or interest rates much less than asset growth rates then you have the equivalent of throwing a bucket of bloody mackerel over the side of the boar and then moaning when sharks appear in their hundreds.


  • Comment number 34.

    My take is that the Hedge funds seek out vulnerabilities, sharing their intelligence, and organise and engineer the downfall of the (perhaps) lumbering behomoths that we have our pensions and savings invested in.

    The seem a bit like the Privateers of Elizabethan times.

    They do not work for Our good. Why should we protect them?



  • Comment number 35.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 36.

    Hedge funds do exploit market weaknesses and errors, no matter how temporary that weakness is.

    So if you go out to buy a morning paper and leave your door unlatched a Hedge Fund Manager is legally entitled to put a bet on your house burning down.
    He raises a derivative for this risk, leverages it to the hilt on the market and then once these derivatives have been purchased he throws a burning taper into your house.

    You come back from the corner shop to find your home has been burned to the ground...and it was completely legal for him to take advantage of your error, he did nothing illegal.

    Yup, hedge fund guys are real cool dudes and well worth supporting.

  • Comment number 37.

    #28, quite right, the politicos have got away with it again, we are still voting in large numbers for the same big three.

  • Comment number 38.

    > So if they insist on retaining Cayman as their official home.

    Don't worry - we're going to deal with Iran, Cayman,
    North Korea etc. once the taliban are out of the way. It's a
    bad time for rogue states, say The Prez.

  • Comment number 39.

    # 12. At 9:49pm on 14 May 2010, MikeE-BCN wrote:

    > Banks are essential to the capitalistic system ....

    I rather hope the Internet will eliminate middlemen,
    like banks etc. And I rather hope we use our
    armed forces to eliminate rogue states like Cayman
    Islands - what else do we pay the army for?

  • Comment number 40.

    Ah well, it couldn't last longer than the Volcker piece.

    Never mind - back to reporting for financial planet - rather than about it?

  • Comment number 41.

    Is it really necessary to have government bond and currency markets in their present form? Their useful functions are to allow governments working through the central banks to adjust the money supply by selling or buying bonds and to let market forces make adjustments to the exchange rates. But why rely on the casino like operations of free markets to do this? The resulting instability does world wide damage to financial systems and inhibits trade.

    A sort of international MPC could decide exchange rates and vary them as necessary to control currency flows. Market intervention by central banks, backed by currency swap arrangements, could then implement its decisions. Differential interest rates for bonds denominated in different currencies could be set to match planned crawling peg exchange rate changes, so that arbitrage between them would be pointless.

  • Comment number 42.

    36. At 09:36am on 15 May 2010, ady wrote:
    "So if you go out to buy a morning paper and leave your door unlatched a Hedge Fund Manager is legally entitled to put a bet on your house burning down."
    Yep
    "He raises a derivative for this risk, leverages it to the hilt on the market and then once these derivatives have been purchased he throws a burning taper into your house."
    "... he did nothing illegal." Nope. It's called arson even for terrorists or hedgies.
    The "rotten foreigners" are after damaging London as a trading base, they want the market in Frankfurt. They may get it too if Germany has to bail out the UK. Unlike Greece we do have a few things worth having.

  • Comment number 43.

    Don't the Germans want to clip the Hedgies, rather than bash them?

  • Comment number 44.

    Nobody has claimed the hedgies do anything socially useful, so I've no objection to getting rid of them. And if individuals don't pay their taxes, they should have their nationality revoked. It's no big deal.
    But let's not forget the more important issues.

  • Comment number 45.

    #36 - "Hedge funds do exploit market weaknesses and errors, no matter how temporary that weakness is.

    So if you go out to buy a morning paper and leave your door unlatched a Hedge Fund Manager is legally entitled to put a bet on your house burning down.
    He raises a derivative for this risk, leverages it to the hilt on the market and then once these derivatives have been purchased he throws a burning taper into your house"

    No, what actually happens is that your careful observations of the marketplace reveal that more and more people are now doing research into how you conduct your home security and have the opinion that you are too careless. They therefore express their view on this matter by taking a particular position in the market, which results in your insurance costs rising. This alerts you to the fact that you keep leaving your door unlocked, so you start locking it.

    You, like so many others, seem to believe that it is all about doing people over for the sake of a fast buck, and while there are a few unscrupulous sorts who do that (just as there are unscrupulous sorts in all areas of life, yes even at CERN JC. Even in the Red Paradise WOTW), the majority of the financial world is concerned with providing a financial service to their clients and investors whilst managing their own risk.

    One of the useful functions that hedge funds perform is that they are key players in keeping the market price reliable. Part of their business is exploiting arbitrage opportunities, and the act of doing that is what irons out price mismatches.

    Price fixing or market manipulation is illegal.

  • Comment number 46.

    # 42. At 1:35pm on 15 May 2010, pietr8 wrote:

    > Unlike Greece we do have a few things worth having.

    Do you mean the Elgin Marbles?

  • Comment number 47.

    # 44. At 2:15pm on 15 May 2010, PacketRat wrote:

    > Nobody has claimed the hedgies do anything socially
    > useful, so I've no objection to getting rid of them.

    I just don't understand the delay. If they can
    cause trouble to me just by adding, deleting or
    updating some computer records, then we should
    flush them down the toilet, quickly.

    > And if individuals don't pay their taxes, they
    > should have their nationality revoked. It's no
    > big deal.

    Use it or lose it, I say. Give them 6 weeks to pay
    back 50% on the fiddles they've done, then throw them
    out anyway. And if they don't pay, send them to
    Iceland.


    > But let's not forget the more important issues.

    Indeed. Tranmere Rovers beat Stockport County, last week.
    That's worth a few bob for the people of Birkenhead, eh?

  • Comment number 48.

    41. At 1:09pm on 15 May 2010, stanblogger wrote:

    Is it really necessary to have government bond and currency markets in their present form? Their useful functions are to allow governments working through the central banks to adjust the money supply by selling or buying bonds and to let market forces make adjustments to the exchange rates. But why rely on the casino like operations of free markets to do this? The resulting instability does world wide damage to financial systems and inhibits trade.

    A sort of international MPC could decide exchange rates and vary them as necessary to control currency flows. Market intervention by central banks, backed by currency swap arrangements, could then implement its decisions. Differential interest rates for bonds denominated in different currencies could be set to match planned crawling peg exchange rate changes, so that arbitrage between them would be pointless.

    Stanblogger, an international MPC would have one massive problem, everyone would have to have the same interest rates and monetary policy, because your crawling peg exchange rate would not remove interest rate differentials in currency terms. And how would you get some countries to agree to revaluations against other countries? Can you see a set eur/usd exchange rate being popular with either the EU of the US?! What about the japanese who consistently comment on the problem of a strong japanese yen... There are far too many vested interests...

    If this were to be the case, I would be sat very long of BRL/JPY, because the Selic rate is 9.5%, the Japanese rate 0.1%, if the exchange rate was fixed in currency terms, no problems! Controlling the flows of money as well would have wider implications, and could not be centralised worldwide.

    Currency management is a useful tool in wider terms, think how much the Greeks would love their drachma back right about now... Also think how the Germans aren't too bothered by a 15% devaluation in the Euro as a major exporter either!

    Britain's public finances would be even worse if we couldn't devalue our currency...

    Yes I worked trading FX at a hedge fund, that was domiciled in the UK, where we all paid our taxes, and yes I am fully aware my opinion on hedge funds could be simply lambasted as trying to defend the indefensible.

    But, for what it is worth, I cannot see why hedge funds are portrayed as such socially useless beasts, that simply prey on the innocent and are no good to anybody.

    Firstly, as has been mentioned, do people not realise the impact of financial industries on this country? The proportion of tax revenues, the impact of the spending of the employees does certainly aid the wider economy.

    Secondly, what will replace these revenues if all the hedge funds run away? It is obvious that the government needs all the tax revenues it can get right about now with our ridiculous deficit.

    Surely this country wants whatever jobs it can get right now with unemployment as high as it is? Or do people simply want to be funded to not work by every other tax payer...

    Of course we are by no means as useful 'socially' as doctors, nurses, teachers or whatever, but at the same time, what would you have replace us? This country on a worldwide scale is uncompetitive in manufacturing terms compared to China, India etc. It is not as if there is a sector crying out for people to work in, quite the opposite, since there aren't enough jobs to go around....

  • Comment number 49.

    45. At 2:27pm on 15 May 2010, LePlonk wrote:
    Price fixing or market manipulation is illegal.

    ... and financial operators don't bend rules, break unenforceable rules, or break enforceable rules on the basis of cost/benefit? Amorality isn't an adequate defence for profitable vandalism, "legal" or otherwise.

  • Comment number 50.

    48. At 2:56pm on 15 May 2010, al2975 wrote:

    41. At 1:09pm on 15 May 2010, stanblogger wrote:

    An International MPC!!!!

    Both of you seem to have overlooked the insurmountable problem with an International MPC and that is of legal ENFORCEMENT.

    Without a global legal system you simply can't have a global MPC! No sign of any interest in a genuine democratically controlled global legal system so I cannot conclude that any idea of an international MPC is dead before it starts.

    Which brings me back to why we need National Controls with Exchange Control. (see earlier posts)

  • Comment number 51.

    So, Robert, - if all hard-working families demanded their wages and/or salaries in cash after tax and national insurance contributions - the hedge funds, fund managers and banks should be perfectly happy - yes?

    Furthermore, Robert, as governments, utility companies, supermarkets, bond markets don't make their shareholder's money on what they do or sell, but on the money markets from rent/cash flow from customer shopping - why would they refuse the legal requirement to pay employees in cash after deductions?

    EVERY employee has a legal right to demand and receive their wages/salaries after tax/NI deductions in cash. As so much bank input from wage/salary is 'spot gambled' - that's never questioned - but banks and traders don't operate on that ... do they ...??

  • Comment number 52.

    Surely the point of a hedge fund is to hedge? Their "socially useful" purpose is simply to protect investors' money. If they failed to do so they would soon go out of business.
    The real rascals are the people who took on huge amounts of debt to make one-way bets that already overvalued assets would keep going up. The latest in a long history of bubbles is the "property" market. It is the great, greedy, uninformed who do the real damage, not the professional fund managers. You can't regulate human nature.

  • Comment number 53.

    Why the bashing of hedge funds?
    Because some of them (too many of them) have bashed the world economy. Prime Minister David Cameron's new coalition faces likely defeat next week when it comes to imposing tougher laws on hedge funds & private equity groups.
    Britain fears potentially losing hedge funds to non-EU nations like Switzerland & Singapore. Of course, keeping the hedgers will place the UK in financial lock-step with the United States, which is also cautious about an assault on its hedge funds. The US prefers free-wheeling, cowboy trading where it's every man for himself.
    Britain is Europe's main private equity centre - home to 80% of the region's hedge fund industry. This policy to regulate (or even ban) hedge funds is without a doubt a European plan, but that alone does not make the plan wrong.
    Cameron and the Tories hold strong scepticism toward EU financial regulations.
    London's hedge fund hubs - Mayfair and Belgravia – have thrived on money from largely unregulated hedging. The funds cater to rich or institutional investors & promise outsized returns for similarly outsized fees – almost always using risky leverage, or borrowed money, one of the practices the EU seeks to limit.
    For London, long New York's rival as the world's premier financial centre, the consequences of the proposed EU legislation would be huge. Hedgers are threatening to abandon London for Hong Kong, Singapore and Switzerland to escape regulation. In my opinion, the attempt to escape regulation speaks volumes about the current procedures hedge funds are using. Among the firms that have already begun packing are Brevan Howard Asset Management LLP, Europe's largest hedge-fund manager, which has said it plans to move staff to Switzerland. The third-largest, BlueCrest Capital Management Ltd., shifted its head office to the tax haven of Guernsey and is reportedly considering moving staff to Singapore.
    Andrew Baker, CEO of the London-based Alternative Investment Management Association, warned in a letter to Jean-Paul Gauzes, the French lawmaker responsible for pushing through the proposed regulations, that the draft legislation is an "unprecedented attempt at closing Europe's borders." If he means closing the borders against gambling and short-selling, he’s right. Why on earth would London or the rest of Europe want unregulated financial procedures?
    Cameron made a last ditch plea for the EU to delay Tuesday's vote of finance leaders on a draft proposal of the new regulations to cover the 27-member bloc. In a clear sign of Britain's loss of influence with Europe, the pitch was turned down. Diplolomats say that Cameron's Treasury chief George Osborne will almost certainly lose the vote.
    The new laws would likely require managers of large funds doing business in Europe to
    - register with local market regulators and
    - to regularly inform supervisors about their trades and risk exposure to prove they don't pose a threat to the financial system.
    - They would have to disclose their overall trading strategy, their risk management system and explain how they value and hold assets
    - and most importantly, they would be obliged to hold a minimum level of capital to cover potential losses.
    Do these requirements sound all that bad if you're operating above-board, nothing to hide?
    The United Sates is so worried enough that Treasury Secretary Timothy Geithner has written to Europe's commissioner for financial regulation, Michel Barnier, expressing concerns that European regulations would discriminate against American firms. My response is: Alleluia, go for it - discriminate!
    Cameron is moving swiftly to capitalize on his government's allegiance with the United States. He immediately dispatched his new Foreign Secretary William Hague for a meeting with Secretary of State Hillary Rodham Clinton. "Gordon Brown didn't have a particularly good relationship with (President Barack) Obama, and while there's no guarantee that Cameron will have a better relationship, he sure seems to be trying.
    Cameron eventually may find his effort to steer closer to the US complicated by his coalition partner, the staunchly pro-European Liberal Democrats. Their leader, Deputy Prime Minister Nick Clegg, is a former member of the European parliament.
    Hasn’t Europe, including London had enough of the American unregulated financial system, including hedge funds? Aside from that, all the EU is doing is putting a few requirements on them. So what's the problem?

  • Comment number 54.

    30. At 08:40am on 15 May 2010, the_fatcat wrote:
    24. DevilsAdvocate wrote:

    "Lets hope our Coalition of Blair clones can address our deficit, their initial attack on the simple parliamentary majority for a No Confidence vote doesn't fill me with hope"

    There has been no attack on the simple parliamentary majority for a No Confidence vote - it is still a single vote majority and there are no proposals to change this. You need to properly research what actually is being proposed, and why this increases Parliamentary democracy.

    Sorry to disappoint you, but why let the facts get in the way of a good political attack?

    =========

    So a 55% majority is not a change from 51% majority? What facts are you dealing with?


  • Comment number 55.

    32. At 08:45am on 15 May 2010, avi wrote:
    Peston talks about the Con-Libs. The right name for them is Con-Dems.

    =========

    I've read with amusement all the moans by the Lib-Dem supporters about being 'betrayed', but as the Lib_dems were touting their desire to be the Kingmakers for weeks before the election I'd say they have little to complain about, BUT, if I were a Tory voter, then I can well imagine many of them feeling betrayed. I can't decide if Labour knew what they were doing when they scuppered the Lib-Dem advances, but it was clever politics, they haven't been annihilated. They probably have a few years assuming Cameron doesn’t get his 55% change for No Confidence votes through
    (and fat-cat apart, I believe that most people realise a change to 55% of MPs required to pass a vote of No Confidence is a big difference from the current 51% majority)
    In which to regroup and maybe become an alternative to this Government, although it might be nice if Osborne eventually lets us all know just how much debt Brown took on for us, that may end up an albatross around their collective neck, but so far, the more I look at Government the more I fear we now have 2 Blair’s in charge, and I certainly didn’t want that.

  • Comment number 56.

    It is all really, really strange.

    The Greeks are out on the street demanding justice and it is all over the TV.
    Robert has another item on the politics of hedge funds in Europe.

    But I've only just seen this demonstration in New York. (at around 9 minutes, democracy now website on the 30th april of this year, there is an item about a peaceful demo where the crowd chant 'you got bailed out we got sold out!') http://www.democracynow.org/2010/4/30/you_got_bailed_out_we_got

    Now I know we had an election campaign, but still, people are out on the streets in America! Three years after the start of this thing. WritingsOnTheWall, I hope you are seeing this with a grin on your face.

  • Comment number 57.

    55. At 9:19pm on 15 May 2010, DevilsAdvocate
    'I can't decide if Labour knew what they were doing when they scuppered the Lib-Dem advances, but it was clever politics, they haven't been annihilated.'

    Leaving aside the question of competency in government I do feel that Labour still have a large degree of tactical nous. I just can’t see Campbell or Mandelson viewing the mid term prospects of a Labour led coalition as anything other than disastrous. (Just maybe they might have considered Conservative party melt down (Dave is hardly universally popular in his own party) with a quick election under a new leader and a tweaked voting system as some kind of short term strategy).

    Personally I would guess they played it pretty much as it came out. Politically the LDs and Labour had to have some level of discussion but I suspect the LDs were keener than Labour (the LDs were in a very difficult position). Labour came out of this pretty well and with most of their key people intact, in fact they seem pretty buoyant. It seems reasonable to say that they were the only party that exceeded the general expectation in terms of the election result. 10,000 people joined the Labour party in the week since the polls, over 4,000 alone on the first full day of the new government.

    ‘…it might be nice if Osborne eventually lets us all know just how much debt Brown took on for us’

    It certainly seems that we are going to get some different figures for the budget. They have stated that they are going to take an alternative viewpoint on the deficit and growth figures to those provided by the treasury. They are unlikely to take figures that make the short term position look better. At this point you want to create the largest opportunity for perceived upside improvement.

  • Comment number 58.

    It's not called arson.
    It's called the global free market in derivatives.

    The really cool bit is that when you get home and YOUR world is a pile of smoke your hedge fund neighbour has made 1 million dollars out of your 100,000 house because he can leverage the value by up to 10 times.

    And it gets even better.

    Now your home is gone but where does the 1 million bucks come from??

    Derivative underwriters like AIG, that's where, underwritten by Uncle Sam...that's your future tax dollars earned with the sweat off your brow.

    So not only has Mr Hedge Fund smoked your comfy financial universe he's also got you working towards paying him the cash he won every time you pay taxes.

    A bunch of suckers hardly describes it.

  • Comment number 59.

    Completely agree with comment 58.
    We keep the leeches afloat with our money.
    Governments borrow to keep economies afloat.
    The leaches gamble with the economies, taking our money.
    The leeches then pay themselves huge bonuses.
    The spiral is always down and tighter.

    The worm is eating itself faster and faster. There is only one possible outcome.

  • Comment number 60.

    54. DevilsAdvocate wrote:

    "So a 55% majority is not a change from 51% majority? What facts are you dealing with?"

    These facts:

    No confidence vote 50% + 1 - no change and no proposal to change.

    Dissolution of Parliament (currently solely, exclusively and unilaterally in the power of the sitting Prime Minster) 55% (cf Scotland 66%)

    Even many of the political journalists don't seem to understand the difference.

  • Comment number 61.

    57. Squarepeg wrote:

    "It seems reasonable to say that they were the only party that exceeded the general expectation in terms of the election result. 10,000 people joined the Labour party in the week since the polls, over 4,000 alone on the first full day of the new government."

    But let's get this into perspective: in the same period over 170,000 people have signed up on Facebook for 'David Cameron's house party' at no 10 on 31 July......

  • Comment number 62.

    Wouldn't it be better to get to the point and ban naked CDS.

  • Comment number 63.

    The term 'London based hedge funds' is misleading, since the fund administration will almost certainly be outside the UK with Dublin as a primary EU centre. What is in London will be the management teams which numerically will be very small.

    Controls to curb the leverage powers of hedge funds are well founded; lending by banks to hedge funds is lending that would be better deployed in helping businesses to grow in other parts of the economy from a public interest perspective.

    There should also be restrictions on the ability of hedge funds to borrow shares from long term investors such as pension and insurance funds to gamble speculative situations.

    A single depository for hedge funds is generally the case now anyway. I can't see why Robert sees this as concentrating risk. The depository should not be at risk - it is the fund investors.

  • Comment number 64.

    "60. At 08:47am on 16 May 2010, the_fatcat wrote:
    54. DevilsAdvocate wrote:

    "So a 55% majority is not a change from 51% majority? What facts are you dealing with?"

    These facts:

    No confidence vote 50% + 1 - no change and no proposal to change.

    Dissolution of Parliament (currently solely, exclusively and unilaterally in the power of the sitting Prime Minster) 55% (cf Scotland 66%)"

    Note quite the facts. If on a key vote 50% + 1MP vote against the goverment parliament MUST currently be dissolved and a general election called. Key votes currently include the budget, queens speach.

  • Comment number 65.

    "57. Squarepeg wrote:

    "It seems reasonable to say that they were the only party that exceeded the general expectation in terms of the election result. 10,000 people joined the Labour party in the week since the polls, over 4,000 alone on the first full day of the new government"

    Given that Labour is in a state of flux, ie we have no idea what direction they are heading in there are only two reasions for this massive number of new members

    a) That labour lost the election

    b) That G.Clown and Mandy will no longer be in charge

    Take your pick but the influx started just after G.Brown resigned and not after they lost the election.

  • Comment number 66.

    "32. At 08:45am on 15 May 2010, avi wrote:
    Peston talks about the Con-Libs. The right name for them is Con-Dems."

    will not be long before they are renamed "Com-e-dens" oe "comedians" by the left wing press

  • Comment number 67.

    I am stunned by the ignorance of some of these posts. Do you actually know what a hedge fund is??

    Do you have a pension, or savings?
    Theres very little differnce (in fact very very little with the introduction of UCTIS 3)

    Take a typical hedge fund - a Long/Short fund. The fund manager will buy shares he/she think are going up (just like your pension/unit trust), he/she will then sell shares they think will go down (by borrow from someone else).

    The idea is to hedge your market risk. for example say you are concerned that the Oil spill is going to be very bad for BP and Shell will do better over the long term you would "go long Shell, short Bp" ie Buy Royal Shell Dutch, Sell BP

    The net results is that you -the investor- are not affected by the movement in the oil price but you profit if Shell outperforms BP. You are HEDGING your market risk.

    Pleease explain why this activity is deemed by readers on this website to be like a parasite. IGNORANCE IS A CRIME.









  • Comment number 68.

    There is a question: why do hedge funds need to hide their assets in the Cayman Islands' banks and financial institutions, why this secrecy, what's wrong being transparent?

    With global financial crises you never know. They can start suddenly without warning. I wasn't impressed with bussiness journalists, so self-assured before the credit crunch, when many of them, well-known economic gurus, were shell-shocked because of their inability to foresee the dimension of the approaching financial calamity. Today's world economy is like an n-dimensional space where thousands of factors play role, so the secrecy and hiding the assets in tax heavens (unregulated territories) by hedge funds may be a cause for the next unexpected finacial super-bust. We need to regulate hedge funds, it's as simple as that.

  • Comment number 69.

    #67

    If you want to convince me that hedge funds are useful then go and find me £500m to create a new venture fund to invest in clean tech start-ups and buy existing clean tech companies to create a UK clean tech group with some critical mass to compete with what's going on elsewhere.

  • Comment number 70.

    #67 nihilist. I thought it was quite hard for a nihilist to be stunned.

    Your little BP/Shell example is not exactly an all encompassing example of what hedge funds do is it?

    Let us suppose a hedge fund gets wind that a company is engaged in a criminal conspiracy, and that this criminal conspiracy is doomed to failure. What kind of actions would a hedge fund engage in in such crcumstances?

    No need to answer because we know thanks to the actions of Kynikos in the Enron collapse. Yes they short the stock of the criminal company.

    Now let us suppose that the entire financial system has morphed into one giant criminal conspiracy, but a criminal conspiracy that is being despreately propped up and covered up by governments around the world

    Bit again we don´t need to suppose or to rely on ignorance from the unwashed masses because we have testimony from James K Galbraith to help us.

    http://www.alternet.org/economy/146883/james_k._galbraith:_why_the_%27experts%27_failed_to_see_how_financial_fraud_collapsed_the_economy?page=entire

    It seems strange that hedge funds who profit from the crimes of others should feel either angst or surprise when they are threatened by the criminals paymasters. He who sups with the Devil and all that.

    I am not sure that ignorance per se is a crime, but I am very sure that fraud is a crime. Isn´t there some crime related to living off immoral earnings, or is that only a crime for poor people?

  • Comment number 71.

    Post #67 @ 10:40am on 16th May - 'nilihist'

    " .... hedging the market risk .. "

    Read your comment in full - while doing so, it reminded me of those mortgage-linked endowment policies? You might remember them? An investment vehicle designed to 'even out the risks', (in the old parlance) that ultimately failed so many?

    Didn't need your financial education, but thanks for the memory.

  • Comment number 72.

    Well Mr Peston - having to, as usual, read between your lines, because you want to be impartial, and have to run with the hounds and report to the fox?

    You mention red-tape. However, hedge-funds, fund-managers, trading floors, trading computers running funds 24/7 etc.,
    have never been influenced by red tape? Nor will any of the above give a damn about blue/yellow tape either?

  • Comment number 73.

    I find it very hard indeed to feel any sympathy for the Hedge Funds. They seem to represent all that is questionable about capitalism. I am a believer in free markets and the necessity of a free banking system to allocate capital to those who can actually use it. The test however is that the capital is put to use in a way that can be judged responsible. The actions of hedge-funds, and indeed many banks in recent years has resembled vultures tearing flesh off a corpse rather than the responsible management of money.

    The hedgies do nothing useful. They exacerbate social polarisation and the arguments about the multiplier effects of the few cleaners and gardeners they employ on the minimum wage simply brings on waves of nausea.

    So trim their wings and let's see them leave. Good riddance...they are a stain on whatever honour the country still possesses. Of course the kicker is that they will simply move to non-EU locations to carry on their vital work meaning that we will have reduced our tax take but not changed the world one jot! Still, the fact that they seem to want to be in Switzerland seems very appropriate. They can walk the antiseptic streets. They can can imbibe the legendary Swiss humour and crazy night-life. They can have the time of the shallow lives getting richer and very very bored in a country whose whole prosperity is based on playing with the money of the murdered, the cheated and the dispossessed. What lovely place! Antiseptic it may be, but it has to be because the dead are buried just below the surface! A perfect marriage with the Masters of the Universe!

  • Comment number 74.

    Magister mundi sum! Behold my works and tremble : bluemarsonline.files.wordpress.com/2010/05/volcanicoilspill.gif

    Can I put in Links? This is an animated image of the oil spill in The Gulf of Mexico And The Volcano Ash Cloud . Sorry if I cant put in the link and humour seems to be frowned upon so : Unitam logica falsa tuam philosophiam totam suffodiant

  • Comment number 75.

    Funds and Hedge, Hedge and funds? Funds that Hedge? Heggies that fund god knows who, and who knows what - the fundies don't know either? The answer is in all the titles?

    Investment needed, in reality - investment in real people's hard work and/or innovation? - no, too slow for the fundy bro' on cloud (cough)no?

    MORBIZI - More Opportunity for Real Business Investment/Innovation?

  • Comment number 76.

    Do we still want the UK to be one of the main centers for this illicit paper shuffling Ponsi scam called hedge funds or derivatives. The UK has enough scammers and property speculators to fill the rest of the world.
    Can we please get out heads out of this virtual con and get back into the real world of designing products & services and then making things that people want!
    The reason the Germans don`t like this sort of industry (financial shuffling) is because they treat it as a cancer a sort of pimp that takes pleasure in ripping people off!
    I believe every successful economy has to have a free market if there is such a thing. We all know that every commodity we buy is sold in a controlled market by no more than three players. The city sees to it that they control commodity prices and they act as the gate keeper to our living costs. Lets focus on real work and real jobs and get away from this love affair with market manipulation and paper shuffling.

  • Comment number 77.

    67. At 10:40am on 16 May 2010, nilihist wrote:

    I am stunned by the ignorance of some of these posts. Do you actually know what a hedge fund is??

    Do you have a pension, or savings?
    Theres very little differnce (in fact very very little with the introduction of UCTIS 3)

    Take a typical hedge fund - a Long/Short fund. The fund manager will buy shares he/she think are going up (just like your pension/unit trust), he/she will then sell shares they think will go down (by borrow from someone else).

    The idea is to hedge your market risk. for example say you are concerned that the Oil spill is going to be very bad for BP and Shell will do better over the long term you would "go long Shell, short Bp" ie Buy Royal Shell Dutch, Sell BP

    The net results is that you -the investor- are not affected by the movement in the oil price but you profit if Shell outperforms BP. You are HEDGING your market risk.

    Pleease explain why this activity is deemed by readers on this website to be like a parasite. IGNORANCE IS A CRIME.

    >>>>>>>>>>>>>>>>>>>>>>>

    That's not all hedge fund activity... hedge fund activity is not that simple. When the BBC visit a bank and talk to hedge fund managers and then come away telling us in some boring piece that hedge fund managers just ordinary bankers doing a normal day at the office - they're been conned into reporting a limited view of their 'hedging' - which is an unsuitable and uselesss term regarding all of their 'hedge fund activities.'

    Hedge Fund's operate globally largely under a cloud of secrecy - multiple leveraging of vast pools of money and buying poor investments writing off losses against taxation, moving the funds in and out of tax havens and exposing massive pools of money to inappropriate levels of risk.... when much of money belongs to ordinary stakeholders ...

    when the truth eventually surfaces about their operations ... many will think that hedge funds can be parisitic and can have criminal intent.

    Many hedge funds are prone to disturbingly parasitic behaviour ... i.e in the form of gambling and using money pools improperly behind the scenes which belongs to millions and millions even billions of ordinary people - some of the stakeholders.

    Ignorance is an issue and can also be an informational problem - about the cloud of secrecy regarding the operations of some if not all 'hedge funds'.

    Outside of the financial institutions very few people know what, how and where a hedge fund is, its size, how it operates, leveraging, risk, multiple leverage and multiple risks - obvioulsy you seem to be in this category.

    The FI's are continually shuffling vast amounts of money seeking overnight interest rates etc and this is how currency movements can still change 'overnight' when the 'markets are shut' for normal trading share - most of these transactions are not reported in the public arena - this is a massive issue, massive amounts of money - how do the hedge funds over-lap with this activity? Very little if any regulation here - mainly because the worst of them are in the USA and London ... but now also Switzerland, Moscow and Beijing amongst amny other financial centres)

    If pension fund managers are misusing pension and other savings funds in hedge funds - then pension holders need to know about it. My pension is invested in various units with a well known company and nowhere in any of my pension materials does it mention any gambling my money in hedge funds.

    You may have opened a fresh can of worms here! Pension fund managers have a lot of questions to answer also?

    Shares are only a small part of hedge fund activity - currency speculation by hedge fund speculators can actually attack and entire currency - e.g. Soros and the British pound

    If this isn't negative, parasitic trading I don't know what is - (Why does Soros keep getting trundled out on the BBC like some sort of Chelsea pensioner VC hero? What was Soros doing if not using hedge fund money when he attacked the British pound during Black Wednesday - where did Soros get the money from?)

    What right did Soros have to increase my own mortage payments by 225% and cause hundreds/thousands of repossessions/people to lose their homes during the Black Wednesday fiasco?

    I agree that 'ignorance is a crime' here as millions of us (including yourself I think) do not know what is happening with these hedge funds.

  • Comment number 78.

    Come on guys - you all know women work considerably harder than yow, for considerably less than yow - or for nothing at all, but your crumbs of approval?

    Unfortunately, for women, globally, they just get on with working, growing and harvesting crops; running business; cleaning, innovating new ways of working; feeding and breeding for men? Plus cleaning up after the wars men make? God knows the list is endless?

    Put it another way - men only get power and maintain it with women behind them? Plus, women don't write everything they do in an enormous report that nobody reads the way that men do?

    If woman, globally, went on strike, for a week - OMG!!!!!!

  • Comment number 79.

    Why are the Germans bashing hedge funds? Answer; because they can.

    Germany is the powerhouse of Europe because they have kept their manufacturing industry and are now the economic masters of Europe.

    If you want to change the master/servant relationship think about which country you would like to benefit next time you buy a car.

  • Comment number 80.

    #76 KeithRodgers

    Whether we like it or not the City and all its hangers on are part of a job creation scheme. Arguably of course every facet of mankind's endeavours are part of a job creation scheme.
    What gets me is the holier than thou attitude of the bankers. They think they have gods given right to lord it over the rest of us.
    The Germans think that their job creation schemes are better than "ours".
    But of course their schemes have the potential to use up more of the worlds resources than "ours".
    Banking essentially encourages service industries. Unless they start building great big headquarters all over Canary Wharf!

    So it actually boils down to accountability. The players in the German model are more accountable to the voters than the players in the UK model.
    In the German model things can be seen to go wrong.
    Unlike the UK model where things can go wrong but only recognised as wrong years later. Also the bankers and their proteges are held at arms length to the voters. State outside of a State. But operating inside the State. All unaccountable.


    You need people that can see when things are going wrong in the German model of course. I for one consider their photo voltaics and feed in tariffs to be plain stupid. But arguably good job creation schemes.
    Compare that to the UK banks.
    Do the UK's banks directly use up the earth's resources?

    Accountability is the key word.
    And of course who is doing the checking..

  • Comment number 81.

    #78 corum-populo-2010

    I was on the edge of writing that you missed engineers off your list and I was going to write that in the last 30 odd years I had not encountered a good lady engineer.
    But actually I have not come across any really outstanding engineers of any gender. So you are entitled to your omission.

  • Comment number 82.

    69- Wee Scamp. OK, here's an example. Sorry if it doesnt fit with your preconceptions.

    http://www.boston.com/business/globe/articles/2006/05/29/start_ups_turning_to_hedge_funds/

  • Comment number 83.

    70 - armegiontimes

    "It seems strange that hedge funds who profit from the crimes of others should feel either angst or surprise when they are threatened by the criminals paymasters. He who sups with the Devil and all that."

    As i posted earlier - PLEASE TELL ME WHAT IS WRONG WITH A LONG/SHORT FUND. there is no moral or criminal activity. Reiterating your confused and ignorant preconception doesnt count!!

    By the way, i think another misconception here is that the hedge fund manager is investing only their own money - in the vast majority of cases it is third party money. again often pension money.

  • Comment number 84.

    78. At 6:26pm on 16 May 2010, corum-populo-2010

    That reminds me of a story I heard about one of the bosses at a well-known Accountancy franchise. Every time upset his wife, she'd go on strike, reminding him just how much he depended on her. And all the staff in the building knew he'd been bad; and women being women, well they'd support his wife in many little ways.

    He'd arrive first thing Monday morning - with his shirt obviously having been nowhere near an iron! Amazingly the PAs etc could always find plenty of replacement shirts in the nearby shops, but never in his size!

    But women can be far more powerful than driving men nuts over ironed shuts. Take a look at this:

    http://news.bbc.co.uk/1/hi/world/africa/8033695.stm

    Women all over Kenya are currently on a "sex strike".

    They hope that by denying sex to their partners for seven days they can stop the infighting which has plagued the national unity government in Kenya.

    What started as a movement by female activist groups has spread far and wide, recently being endorsed by Ida Odinga, wife of Kenyan Prime Minister, Raila Odinga.

    Sex has been used as a political weapon in the past. During Liberia's 14 year long civil war, fighting was successfully halted by a small band of women who took on the warlords, armed with the threat to withhold sex.


  • Comment number 85.

    #83 nihilist. How smart do you need to be?

    Enron was engaged in a criminal conspiracy. Kynikos worked this out ahead of most other people. Kynikos shorted the stock. The general market worked out that there was something wrong with Enron. The stock price fell. Kynikos made money. They made money because someone else was engaged in a crime. It is not even arguable.

    Today entire governments are engaged in a criminal conspiracy. They don´t want people like you shorting their bonds because in short order it will reveal their crimes.

    If, given current events, you short BP and go long Shell then in the end you may drive BP into bankruptcy. This will mean BP cannot meet the clean up costs, which means that a non connected third party (i.e. general taxpayers) will need to meet these costs. You will make money, but will not need to meet any costs. Where is the morality in that?

    If you destroy BP then you also destroy pension funds - the very funds you need to hijack in the first place in order to make the "entrance fee" Where is the logic in that?

  • Comment number 86.

    I assume Angela with a hard G has a UK hedge fund account then.

  • Comment number 87.

    many hedges are moving out of euro zone, notably to Switzerland and many Britains are flocking over there. We need to have the ability to run our economy as we see fit and forget about euro regulations.

  • Comment number 88.

    Whether or not hedge funds caused the credit crunch, there is still a strong case for regulating them more strictly.

    They exist in order to make large profits for wealthy investors and we should ask where these profits come from. They do not create anything of value, so these profits must be at the expense of small investors in the same markets. In other words you and me.

    Instead of dismissing our fellow EU governments as foolish, we should be asking why UK governments, Labour or Tory, unlike the French and German governments, are on the side of the hedge funds. It could not possibly have anything to do with donations made by certain individuals to political parties, or could it?

  • Comment number 89.

    #82 nilihist

    Good find. However, that was four years ago and in the USA where I can actually believe hedge funds might well demonstrate some enterprising spirit. Now find me a UK example and I'll buy you a beer.

  • Comment number 90.

    To hedge an invest could be a good idea. To have businesses that offer a service to hedge your investments seems a good idea too.

    But, if there is not controll, no transparency, you can imagine, that such businesses may have the idea, that it would much more profitable not to just insure given risks, but first to create risks. As every business tries to create new markets.

    That's point one.

    Point two might be, that there are countries who finance their pensions privately and others by taxes or mandatory insurrances.

    Both kind of countries have their problems with aging populations. The countries with the public modell have to put ever bigger parts of the nations productivity into the pensions system, while those with the private sector funding have to find ever bigger investment opportunities.

    You see, one national eoonomy has to work harder and harder, to reach the goal of a productivity quota that is higher than the aging poulation factor, while the other is looking for investments, that pay interest rates higher than the ordinary production companies profit rate.

    One can imagine, that the countries which have to work harder and harder to sell their goods and pay their pensions have a problem with multinational, uncontrolled investment conglomerates, that bet against their companies or currencies.

    And third, how far is it thought, that the countries with the private financing of the pensions, with the big financial sector and the small industrial, favour these conglomerates? Indirectly by their national laws, may be even directly by financing them and lobbying for them on international stages, like the EU? May be not only buy lobbying, but obstruction?

    Excuse my bad english, but if you ask, why germans are "bashing", than it might be acceptable for getting a german opinion.


  • Comment number 91.

    I don't think this post by Peston is correct. I don't think there is a widespread continental view (I work in a 'continental' bank) that hedge funds caused this crisis: there is a widespread view that banks should be nationalised and financial markets regulated.

    Deals that allow debt to be gained for the purposes of unproductive speculation, whether carried out by banks or enabled by hedge funds, and mechanisms that decrease the transparency of critical systems in society should all be carefully controlled.

  • Comment number 92.

    While I don't believe Hedge Funds were the root cause of the financial melt-down, they don't actually do much to generate wealth either. As I see it they just parasitise the economy around those who do.

  • Comment number 93.

    Why don't the UK just ignore the new rules? Every European country including Germany & France seem to ignore what doesn't suit whether its competition rules or the stability pack. Its time we stood like other European countries for ourselves first.

  • Comment number 94.

    - The german state owns the most troubled german banks now, loosing some billions of euros every quarter of the year there. The same banks and thus the state would bleed even more if the greek bailout failed (the Greece bailout is just another route of german taxpayers paying for bankrupt german banks). Thus, regulating banks and cutting off their speculation with taxpayers money (via BCE) would cut them off their currently major way of making money. It could force the german government to let the kinds of HRE and various Landesbanks going bankrupt. This could be another Lehman Brothers, at least within the german financial world. More important from a german politicians view, it was not unlikely to cause the political parties loosing even more german votes in a surge. That is about what has happened in North Rhine-Westfalia. In Bavaria the Landesbank disaster also is a major political issue making the CSU party plunge below the abolute majority they had for decades. - The next german elections are in Baden-Wuerttemberg, the swabian and most protestant state in Germany. (Swabs are about the Scots of Germany, with respect to the cliche about spending. The Landesbank of B.-W. is also still in deep troubles.)
    - The current german government ideologically lags some years behind reality. They still fully believe in Reagonomics. It may also be noted that Mr. Ackermann of Deutsche Bank served as a personal advisor of the german chancellor for some time.

  • Comment number 95.

    # 91. At 08:50am on 17 May 2010, Oblivion wrote:

    > there is a widespread view that banks should be nationalised and
    > financial markets regulated.

    We all know that - we just don't understand the delay. Updating
    computer records is not "real work" - counting money is a
    trivial service, like having your hair cut or having your
    shoes shined.


  • Comment number 96.

    The hedge funds or the people who run them must be restricted on what they do with other peoples money and that goes for banks too. Say for instance so much money can only be used for a certain transaction. and that is if the transaction fails the hedge fund can stand it comfortably without bringing the hedge fund down or the same with banks, we do not have to give these people a blank check what they can do withg our money.

  • Comment number 97.

    The problem is very similar to drugs - do you tackle supply or demand (or a bit of both). The hedge funds are creating the demand on the investment banks for ever more complex/ludicrous derivations to create two sides of a bet that they believe they can't lose. Governments are not wrong to tackle demand especially since the supply side is virtually unlimited given how artificial it all is.

  • Comment number 98.

    Remember the comment by the government of the day "the taxpayer will not bail organisations that believe they are too big to fail"
    Why did the FSA agree to this take over?, they should be breaking up banks and insurance companies not making them bigger!
    Note its not the business cash at risk but some unsuspecting shareholder who sees a too good to miss opportunity yea right, When I read this story I thought here we go again another financial institution biting off more than it can chew!
    They never learn, is it greed that drives them or just plain ego?

  • Comment number 99.

    One of the commentators has already hit the nail on the head, put simply you take money from the ordinary person, you pool it together, you move it globally around the banking system, then you invest it in shares, hedge funds, derivatives,metals,currencies or shares speculation etc.
    What ever instrument you use you are gambling with someone else's cash!
    The banks and insurance companies will see it as "their cash or funds".
    If profits are made you place them in an off shore bank account or holding company far away from the tax man in any country!
    If losses are made you get bail out cash from the taxpayer and you still make money, only the double hit on the taxpayer depresses the economy even further!
    Proper risk management is about structuring things so that one failure does not effect the whole system, you have back up systems etc.
    Here the problem is the interconnectivity of the transactions on a global scale and no back up systems.
    Put simply you do not put all your eggs in one basket, think about a plane or a car or a train. All have fail safe systems, engineers understand risk perfectly its a shame finance people do not!

  • Comment number 100.

    99. At 4:26pm on 17 May 2010, KeithRodgers wrote:

    "engineers understand risk perfectly its a shame finance people do not!"

    There is a simple reason for that, engineers have a very high level of technical education, and are almost without exception highly intelligent. However they tend to love what they do for its own sake, and don't care much about money. The creatures who work in investment banking are generally pretty thick, but have unsurpassed levels of animal cunning when it comes to getting what they want, which is money, more money and nothing but money. Risk? Well its not their money they're playing with, so the concept to them has no meaning. I have worked both in engineering and the city, and I can say with certainty that this country, indeed this world, is rewarding entirely the wrong set of people. If that is a consequence of the capitalist system, then that system has comprehensively failed in what it is supposed to be good at, the efficient allocation of resources.

 

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