Treasury Outlines Toothless Hedge Fund Rules
By Kevin G. Hall
McClatchy Newspapers
Tuesday 15 April 2008
Wa****ngton - With an eye toward shoring up shaky financial markets,
Treasury Department
officials unveiled a plan Tuesday to provide greater transparency and
management of risk in
hedge funds.
However, the Bush administration's "best practices" proposal is
voluntary, and less than
two dozen of the more than 8,000 registered hedge funds signed onto the
plan.
Hedge funds are large pools of investment capital owned by the
wealthy. They are largely
unregulated.
The plan, presented by Treasury Secretary Henry Paulson, doesn't
introduce new regulation.
It depends instead on self-policing and good behavior by hedge fund
managers - two qualities
missing in action in recent years as Wall Street excesses have led to what
former Federal
Reserve Chairman Alan Greenspan recently called the worst global financial
crisis since World
War II.
A former CEO of investment bank Goldman Sachs & Co., Paulson didn't
rule out the
possibility of future regulation.
"Both market and regulatory practices will evolve from here, but this
is certainly a
logical step at this time," Paulson said. "We must implement best
practices and continually seek
to strengthen our market and regulatory practices."
Critics of the plan, such as Connecticut Attorney General Richard
Blumenthal, think it
gives hedge fund managers, who helped devise the "best practices," a free
pass.
"This plan is one small step when giant strides are needed. The
Treasury Department's
proposals for greater transparency and risk disclosure must be mandatory
or they are
meaningless," Blumenthal said in a statement. "Non-binding best practices
or voluntary
guidelines are an imaginary fence and virtual farce: They stop nothing."
Many economists have warned that loosely regulated hedge funds pose a
system-wide risk to
financial markets, but so far they've emerged from the current credit
crisis in good shape.
Instead it has been the investment banks - their business partners - whose
losses now pose risks
to global finance.
Hedge funds require investors to have a minimum net worth of more
than $1 million and
prior-year income above $200,000. Upon meeting that qualification,
investors are required to
have a minimum investment, matched by a small pool of partners, that can
range from $250,000 to
as high as $10 million.
These hedge funds are closed to small investors under the premise
that only the rich can
afford the risk of high hedge fund losses. The funds also offer far
greater rewards to investors
than is generally available through safer mutual funds and 401(k)
retirement plans.
Although an average American cannot invest in hedge funds, which now
boast more than $2
trillion in assets under management worldwide, state pension funds can and
increasingly do.
This has raised concerns about accounting practices, fees,
transparency and risk-management
practices, particularly after the spectacular September 2006 collapse of
Amaranth Advisors LLC.
It had such a large concentration of investment in contracts for future
delivery of natural gas
that it was later charged by federal regulators with price manipulation.
Eric Mindich, founder of giant hedge fund Eton Park Capital
Management and co-drafter of
the "best practices" plan, told re****ters Tuesday that "a bunch of warning
flags would have been
triggered (about Amaranth) if this had been in place at the time."
The state employee pension plans of California, Pennsylvania,
Massachusetts and New Jersey
were among those that lost money during Amaranth's collapse. Employees of
San Diego County in
California also lost big.
The chief investment officer of California's state pension fund,
Russell Read, led one of
two working groups that together came up with Treasury's "best practices"
plan. He acknowledged
that there was nothing to compel compliance and that there would be no
public record of which
companies are adopting "best practices."
There will be a "fair amount of missionary work" to convince
companies it is in their
interest to adopt these proposed standards, Read said.
Go to Original
Wall Street Winners Get Billion-Dollar Paydays
By Jenny Anderson
The New York Times
Wednesday 16 April 2008
Hedge fund managers, those masters of a secretive, sometimes volatile
financial universe,
are making money on a scale that once seemed unimaginable, even in Wall
Street's rarefied realms.
One manager, John Paulson, made $3.7 billion last year. He reaped
that bounty, probably the
richest in Wall Street history, by betting against certain mortgages and
complex financial
products that held them.
Mr. Paulson, the founder of Paulson & Company, was not the only big
winner. The hedge fund
managers James H. Simons and George Soros each earned almost $3 billion
last year, according to
an annual ranking of top hedge fund earners by Institutional Investor's
Alpha magazine, which
comes out Wednesday.
Hedge fund managers have redefined notions of wealth in recent years.
And the richest among
them are redefining those notions once again.
Their unprecedented and growing affluence underscores the gaping
inequality between the
millions of Americans facing stagnating wages and rising home foreclosures
and an agile
financial elite that seems to thrive in good times and bad. Such profits
may also prompt more
calls for regulation of the industry.
Even on Wall Street, where money is the ultimate measure of success,
the size of the
winnings makes some uneasy. "There is nothing wrong with it - it's not
illegal," said William H.
Gross, the chief investment officer of the bond fund Pimco. "But it's
ugly."
The richest hedge fund managers keep getting richer - fast. To make
it into the top 25 of
Alpha's list, the industry standard for hedge fund pay, a manager needed
to earn at least $360
million last year, more than 18 times the amount in 2002. The median
American family, by
contrast, earned $60,500 last year.
Combined, the top 50 hedge fund managers last year earned $29
billion. That figure
represents the managers' own pay and excludes the compensation of their
employees. Five of the
top 10, including Mr. Simons and Mr. Soros, were also at the top of the
list for 2006. To
compile its ranking, Alpha examined the funds' returns and the fees that
they charge investors,
and then calculated the managers' pay.
Top hedge fund managers made money in many ways last year, from
investing in overseas stock
markets to betting that prices of commodities like oil, wheat and copper
would rise. Some, like
Mr. Paulson, profited handsomely from the turmoil in the mortgage market
ripping through the
economy.
As early as 2005, Mr. Paulson began betting that complex mortgage
investments known as
collateralized debt obligations would decline in value, much as Wall
Street traders bet that
shares will drop in price. In that case, known as shorting, they borrow
shares and sell them,
wait for the price to fall, buy the shares back at a lower price and
return them, pocketing the
profit.
Then, over the next two years, Mr. Paulson established two funds to
focus on the credit
markets. One of those funds returned 590 percent last year, and the other
handed back 353
percent, according to Alpha. By the end of 2007, Mr. Paulson sat atop $28
billion in assets, up
from $6 billion 12 months earlier.
Mr. Soros, one of the world's most successful speculators and richest
men, leapt out of
retirement last summer as the market turmoil spread - and he won big. He
made $2.9 billion for
the year, when his flag****p Quantum fund returned almost 32 percent,
according to Alpha. Mr.
Simon, a mathematician and former Defense Department code breaker who uses
complex computer
models to trade, earned $2.8 billion. His flag****p Medallion fund returned
73 percent.
Like Mr. Paulson, Philip Falcone, who founded Harbinger Partners with
$25 million in June
2001, cast a winning bet against the mortgage market. He pulled in returns
of 117 percent after
fees in 2007 and made $1.7 billion. The trade thrust him from relative
obscurity to hedge fund
heavyweight: he now manages $18 billion. Harbinger recently won agreement
from The New York
Times Company to add two members to its board.
Hedge fund managers share their success with their investors, which
include wealthy
individuals, pension funds and university endowments. They typically
charge annual fees equal to
2 percent of their assets under management, and take a 20 percent cut of
any profits.
With a combined $2 trillion under management, the hedge fund industry
is coming off its
richest year ever - a feat all the more remarkable given the billions of
dollars of losses
suffered by major Wall Street banks.
In recent months, however, scores of hedge funds have quietly died or
spectacularly
imploded, wracked by bad investments, excess borrowing or leverage, and
client redemptions - or
a combination of those events.
"To some degree it's a very gigantic version of Las Vegas," said Gary
Burtless, an
economist at the Brookings Institution.
As Alpha's list shows, managers who reap big gains one year can lose
the next.
Edward Lampert, the founder of ESL Investments and a member of the
2007 Alpha list, was
absent this year. His fund fell 27 percent last year, according to Alpha.
About 60 percent of
ESL's equity ****tfolio is invested in Sears, whose shares plunged 40
percent last year. ESL is
also a major holder of Citigroup, whose abysmal performance matched that
of Sears.
A manager who ranked high in the 2007 list and fell off in 2008 was
James Pallotta of the
Tudor Investment Cor****ation, who was 17th last year and earned $300
million. Mr. Pallotta's
$5.7 billion Raptor Global Fund fell almost 8 percent last year, according
to Alpha.
A few who did not make the cut still made buckets of money. Bruce
Kovner of Caxton
Associates and Barry Rosenstein at Jana Partners didn't make the top 50.
But Mr. Kovner earned
$100 million, and Mr. Rothstein earned $170 million, according to Alpha.
Spokesmen for the hedge
fund managers either declined to comment on Tuesday or could not be
reached.
Since 1913, the United States witnessed only one other year of such
unequal wealth
distribution - 1928, the year before the stock market crashed, according
to Jared Bernstein, a
senior fellow at the Economic Policy Institute in Wa****ngton. Such
inequality is likely to
impede an economic recovery, he said.
"For a recovery to be robust and sustainable you can't just have
consumer demand at
Nordstrom," he said. "You need it at the little shop on the corner, too."
Despite the explosive growth of the industry - about 10,000 hedge
funds operate worldwide -
it is relatively lightly regulated. On Tuesday, two panels appointed by
Treasury Secretary Henry
M. Paulson Jr. advised hedge funds to adopt guidelines to increase
disclosure and risk management.
And Mr. Gross, the fund manager, warned that the widening divide
among the richest and
everyone else is cause for worry.
"Like at the end of the Gilded Age and the Roaring Twenties, we are
going the other way,"
Mr. Gross said. "We are clearly in a period of excess, and we have to
swing back to the middle
or the center cannot hold."
-------
http://www.truthout.org/docs_2006/041608P.shtml
()()()()()()()()()()()()()()()()()()()()()()()()()()()()()()()()
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
____________________________________________________________________________________
+ + + + + + + + + + + + + + + + + + + + + + + + + + + + + +
+ + + +
Finally, the campaigns of 1793 and 1794 set Clausewitz on the path of
recognizing war as a
political phenomenon. Wars, as everyone knew, were fought for a purpose
that was political,
or at least always had political consequences. Not as readily apparent
was the implication
that followed. If war was meant to achieve a political purpose, everything
that entered into
war — social and economic preparation, strategic planning, the conduct of
operations, the
use of violence on all levels — should be determined by this purpose, or
at least accord
with it. Even though soldiers had to acquire special expertise, and
function in what in some
respects was a separate world, it would be a denial of reality to allow
them to carry on
their bloody work undisturbed until an armistice brought their political
employer back into
the equation. Just as war and its institutions reflected their social
environment, so every
aspect of fighting should be suffused by its political impulse, whether
this impulse was
intense or moderate. The appropriate relation****p between politics and war
occupied
Clausewitz throughout his life, but even his earliest manuscripts and
letters show his
awareness of their interaction.
The ease with which this link — always acknowledged in the abstract —
can be forgotten in
specific cases, and Clausewitz’s insistence that it must never be
overlooked, are
illustrated by his polite rejection toward the end of his life of a
strategic problem set by
the chief of the Prussian General Staff, in which every military detail of
the opposing
sides was spelled out, but no mention made of their political purpose. To
a friend who had
sent him the problem for comment, Clausewitz replied that it was not
possible to draft a
sensible plan of operations without indicating the political condition of
the states
involved, and their relation****p to each other: ‘War is not an independent
phenomenon, but
the continuation of politics by different means. Consequently, the main
lines of every major
strategic plan are largely political in nature, and their political
character increases the
more the plan applies to the entire campaign and to the whole state. A war
plan results
directly from the political conditions of the two warring states, as well
as from their
relations to third powers. A plan of campaign results from the war plan,
and frequently - if
there is only one theater of operations - may even be identical with it.
But the political
element even enters the separate components of a campaign; rarely will it
be without
influence on such major episodes of warfare as a battle, etc. According to
this point of
view, there can be no question of a purely military evaluation of a great
strategic issue,
nor of a purely military scheme to solve it.’
Everyman’s Library, 1993 ISBN: 0679420436 On war /by Clausewitz, Carl
von, 1780-1831.
Knopf, 1993. From the introduction by Peter Paret, Pg7
_____________________________________________________________________
The U-2 is a jet-powered reconnaissance aircraft specially designed to fly
at high altitudes
(i.e., above 70,000 ft [21 km]). It was used during the late 1950s to
overfly the Soviet
Union, China, the Middle East, and Cuba; flights over the Soviet Union,
the primary mission
for which the plane was designed, ended in 1960 when a U-2 flown by CIA
pilot Gary Powers
was shot down over the Soviet Union. This event was a major political
embarrassment for the U.S.
http://www.espionageinfo.com/Te-Uk/U-2-Spy-Plane.html
Soviet Prime Minister Khrushchev's reaction to the overflights which
were discovered
just before a summit conference in Paris with President Eisenhower: "It
was as though the
Americans had deliberately tried to place a time bomb under the meeting" .
. ."How could
they count on us to give them a helping hand if we allowed ourselves to be
spat upon without
so much as a murmur of protest?" The only solution was to demand a formal
public apology
from Eisenhower and a guarantee that no more overflights would take place
. . .
But the apology Khrushchev was looking for would not come. Despite
having trespassed
on the Soviet Union for the past four years with scores of flights by both
U-2's and heavy
bombers, the old general still could not say the words, it was just not in
him. . . A time
bomb had exploded, prematurely ending the summit conference. . .
Back in Wa****ngton, the mood was glum. The Senate Foreign Relations
Committee was
leaning toward holding a closed door investigation into the U-2 incident .
. . In public,
Eisenhower maintained a brave face. He "heartily approved" of the
congressional probe and
would 'of course fully cooperate,' he quickly told anyone who asked. But
in private he was
very troubled. For weeks he had tried to head off the investigation. His
major concern was
that his own personal involvement in the overflights would surface,
especially the May Day
disaster. Equally, he was very worried that details of the dangerous
bomber overflights
would leak out. The massed overflight may in fact, have been one of the
most dangerous
actions ever approved by a president.
pg. 51-55 ~Body of Secrets; Anatomy of the Ultra Secret National Security
Agency
James Bamford
----------------------------------------------------------------------
"Let me give you a word of the philosophy of reform. The whole history of
the progress of
human liberty shows that all concessions yet made to her august claims,
have been born of
earnest struggle. The conflict has been exciting, agitating,
all-absorbing, and for the time
being, putting all other tumults to silence. It must do this or it does
nothing. If there is
no struggle there is no progress. Those who profess to favor freedom and
yet depreciate
agitation, are men who want crops without plowing up the ground, they want
rain without
thunder and lightening. They want the ocean without the awful roar of its
many waters."
"This struggle may be a moral one, or it may be a physical one, and it may
be both moral and
physical, but it must be a struggle. Power concedes nothing without a
demand. It never did and
it never will. Find out just what any people will quietly submit to and
you have found out the
exact measure of injustice and wrong which will be imposed upon them, and
these will continue
till they are resisted with either words or blows, or with both. The
limits of tyrants are
prescribed by the endurance of those whom they oppress. In the light of
these ideas, Negroes
will be hunted at the North, and held and flogged at the South so long as
they submit to those
devilish outrages, and make no resistance, either moral or physical. Men
may not get all they
pay for in this world; but they must certainly pay for all they get. If we
ever get free from
the oppressions and wrongs heaped upon us, we must pay for their removal.
We must do this by
labor, by suffering, by sacrifice, and if needs be, by our lives and the
lives of others."
http://www.buildingequality.us/Quotes/Frederick_Douglass.htm
Frederick Douglass, 1857
- - - - - -> More political discussion continues at
http://www.politicsusaweb.com/
----------------------
This post contains copyrighted material the use of which has not
always been specifically
authorized by the copyright owner. I am making such material available in
my efforts to advance
understanding of environmental, political, human rights, economic,
democracy, scientific, and
social justice issues, etc. I believe this constitutes a 'fair use' of any
such copyrighted
material as provided for in section 107 of the US Copyright Law. In
accordance with Title 17
U.S.C. Section 107, the material on this site is distributed without
profit to those who have
expressed a prior interest in receiving the included information for
research and educational
purposes.
For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml.
If you
wish to use copyrighted material from this site for purposes of your own
that go beyond 'fair
use', you must obtain permission from the copyright owner.
|
