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luckyjim65

Listed below are comments made by luckyjim65 between Wednesday, 1st July 2009 and Thursday, 9th July 2009.

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Does Europe need hedge funds? 5:57pm on 09 Jul 2009 There seem to be 2 strands of argument here:
1) If the fact that we live in a market driven economy is a given, should we single out hedge funds and private equity firms to blame for the current mess
2) Market driven economies don't work and we should have some other way to organise allocation of resources etc

On (1) hedge funds are not the prime cause. Incompetent regulators, rating agencies and bank senior management all have much more to answer for. Hedge funds are unpopular and largely misunderstood (see many of the comments above for proof of this) and so a convenient scapegoat - in short the victims of government misdirection.

If the available investment universe was narrowed, so that investors could only ever buy equities, it is highly likely that speculative bubbles would be more not less frequent. Short sellers and relative value investors dampen act against speculative excess. The markets don't need hedge funds to get ahead of themselves - Wall St Crash, South Sea Bubble, Dutch tulips didn't need hedge funds to occur. Oil is mentioned as a market where hedge funds increase volatility, but oil isn't a free market with >30% of producers operating a cartel, so don't think this disproves the point

On (2), whilst market economies are not perfect, I think the alternatives have always proven worse. The former Soviet Union wasn't a model of economic efficiency, and I don't think India's attempt to keep its economy largely closed generated huge benefits for its people. The fundamental problem is that no one person or people can have sufficient information to allocate resources efficiently. Hayek's Road to Serfdom makes the point rather better than I can in this blog.

Clearly some things need to be fixed - I think banks have utility like characteristics and should be regulated as such. Regulators relying on rating agencies to judge bank capital requirements was a particular nonsense. I have sympathy with the view that a bank too big to fail is too big to exist. But hedge funds? A sideshow.
Does Europe need hedge funds? 11:45am on 09 Jul 2009 to killthehedgies - assertion dressed up as fact. "Well accepted" by whom exactly? Fourth sentence a non-sequitur, the point of which escapes me. Significant investors are pension funds and insurance companies, i.e. indirectly us, not some shadowy conspiracy as you imply. "RBS and Lloyds... some errors of judgement".. masterful understatement. Please explain why lending 100% mortgage on 5x income is the hedge funds' fault.
Does Europe need hedge funds? 10:49am on 09 Jul 2009 A balanced view, but not in agreement on some points.
re (1) - generally true, although an important point is that the stock market generally values growth over maturity. So many of the mature companies were bought by private equity because the stock market didn't value them highly. Undoubtedly some had too much debt loaded onto them, but they were vulnerable because of low stock market valuation.
re (3) - any broad based hedge fund index has outperformed both equiites and bonds over the long term in terms of higher returns and lower volatility. Obviously some winners and losers in there, but the same is true of individual stocks.
re (6) - cannot be emphasised enough. Hedge funds had virtually no part to play in recent financial crises - the problems were all in regulated banks
re (a) - the vast majority of the buyers of CLOs were banks and other regulated entities, often through off balance sheet vehicles. Without that demand, these "toxic" products would not have got off the ground.
re (c) - not true. Banks finance hedge funds, not the other way round. It was other banks that withdrew liquidity from Bear and Lehman, forcing their demise, not hedge funds.
re (f) - short sellers only make money when they are right. They correctly identified that the banks balance sheets were full of bad assets. It is not the short sellers fault that RBS and HBOS didn't know what they were doing. In general, don't shoot the messenger.

In general it is interesting to see that the major push for increased regulation is coming from countries that have next to no hedge fund or private equity firms (France, Germany), so a painless, populist proposal from them. We should stand firm against this, good to see Boris is.
Honesty: The new battleground 2:48pm on 01 Jul 2009 Mike Naylor (and others)..
A few basic economic facts.. it is obvious to all that the projected deficit increases over the next few years will need to be reigned back somehow - so that's either increased taxes or lower government spending. (Note the use spending, which is not the same as investment, Brown et al should consult a dictionary as he clearly can't tell the difference.) As the IFS has pointed out, some elements of public spending will go up whatever any government does (unemployment benefit, interest on the debt accumulated in Brown's spending spree for example). It is therefore certain that whoever is in power will cut spending on the stuff everyone says they want - NHS, schools. The sums do not add up any other way.

The dishonesty at the heart of Brown, Balls etc is that they think the public is too stupid to figure this out and if they keep denying the facts, eventually people will believe them.

In fact, given the appalling productivity record of the huge public spending splurge we have seen (Governments own figures) I have no idea why so many people seem to think the government is better placed to spend our money than we are, so actually this need not be as frightening and painful as some believe.

In any case, lean times for the publice sector are inevitable, as is Brown not being in Downing Street this time next year

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