Fail of the Week: Grassley/Levin Hedge Fund Regulation Act

The latest bullshit populist bill to come out of the brain trust that is the U.S. Senate, per the WSJ, is aimed at those dastardly Private Equity and Hedge Fund robber-barons, o noesssss!

That this issue is once again on the table is hardly surprising in and of itself, but - and I didn't think this possible - somehow, the proposal is actually more ridiculous than it was the first time we heard about it, ya' know, back in the good ol' days when Steve Schwarzman was still ballin' out, and Trader Monthly was actually still in business.

Anyhoo, the gist of the Hedge Fund Transparency Bill, introduced last week by Chuck Grassley (R - Iowa) and Carl Levin (D - Michigan), essentially comes down to forcing Hedge Funds, Private Equity, Venture Capital, and similar funds with > $50mm AUM to disclose to the SEC, at minimum:

1. The names of the companies and natural individuals who are the beneficial owners of the hedge fund and an explanation of the ownership structure.
2. the names of any financial institutions with which the hedge fund is affiliated.
3. the minimum investment commitment required from an investor.
4. the total number of investors in the fund; the name of the fund's primary accountant and broker.
5. and the current value of the fund's assets and assets under management.

The rationale here is that hedge funds have gotten so big, and so entangled that they pose a serious systemic threat to the U.S. and Global financial system.  One would be hard pressed to refute this basic allegation, although methinks its hardly enough to rationalize raining down with righteous regulatory indignation on the bulk of the alternative asset management industry.  Unsurprisingly, we see our old friend, the classic Bloomberg-esque "Hedge funds for dummies" introduction, below which they cite several other factors (non sequiturs, mostly) supporting their call, among them:

• Endowments and Pensions, the same ones that poor Joe & Jane 6-pack depend upon for their economic well being, have increasingly invested in HF's, leaving these poor innocent folks dangerously exposed to losses..  No mention of the fact that this concern could be tempered by oh, I don't know, actual oversight of the Pensions/Endowments by their boards, managers, and existing regulators, of course.
• A rambling description of how, as far as I can tell, the failure of Bear Stearns HGSCELF lead to Merrill being sold to BoA and every other bank on The Street being forced to take TARP money.
• The claim that, as SEC Commissioner Luis Aguillar stated in a speech on January 9, 2009, the SEC "currently lacks tools in the hedge fund arena to provide effective oversight and supervision," somehow, someway, this Bill will render the SEC effective, despite effectively zero evidence to support that conclusion.
• Somehow, an operation with $50mm AUM is deemed to be included in the single entity "Hedge Funds," and thus necessarily part of the axis of financial evil.  This makes sense, clearly.

The best part of this whole clusterfuck might be that necessarily, these guys must be delusional/dense/retarded to think that the Securities & Exchange Commission, which failed so epically over the course of the past several yours, is up to the lofty task of doubling (or worse) their responsibilities and workload. Clearly, the same group that totally missed the boat on Madoff, despite being spoon-fed 10 years worth of virtually every detail of the scam is up to the task.

For sure, all criticism should end here, QED, but just for shits & giggles, we move on...

Given the requirements spelled out in the numerical list above, the only thing this Bill actually achieves is to guarantee employment of the lawyers, bankers, and accountants whose job it is to devise ways to obfuscate relationships between owners, clients, affiliates, and investors.  Someone should remind these two asshats to be careful what they wish for, since given the populist leanings of those in power, they very well might just get exactly what they're wishing for.

Of course, we'd be deluding ourselves to expect that our elected officials had the ability or the inclination to understand secondary or tertiary consequences of their actions, or the concept of incentive structures, but I digress.

Believe it or not, this crap actually gets even better (worse), ugh:

If the events of the last year have taught us anything, it's that we need to regulate firms that are big enough to destabilize our economy if they fail. It's time to subject financial heavyweights like hedge funds to federal regulation and oversight to protect our investors, markets, and financial system."

Yes, because the metric shit-ton of regulation imposed upon (albeit not necessarily enforced, nor particularly well-conceived in the first place) Citigroup, Bear Stearns, Lehman Brothers, and everyone else whose taken it up the ass over the past year was really effective. 

Of course, this is to say nothing of the fact that there are, actually firms outside the Financial sector whose failure would "destabilize our economy if they fail," but once again, I digress.

The senators said their legislation is needed because of a 2006 decision by the D.C. Circuit Court of Appeals which overturned a regulation imposed by the Securities and Exchange Commission requiring hedge funds to register. The court said the Securities and Exchange Commission was going beyond its statutory authority and effectively ended all mandatory registration of hedge funds with the Securities and Exchange Commission unless and until Congress takes action.

Oh, so, to clarify, the legislation is needed because Congress wants control (via their puppet, the SEC) over Hedge/PE funds, but legally they can't until they pass legislation that says they can?  F' me silly already,

What's that old analogy,  Pro:Con::Progress:__________?

Comments

[masterbesser]

too o'rielly, didn't limbaugh

[Thoth]

couldn't agree more. an explanation of the beneficial ownership? these guys wouldn't be able to read the org chart, let alone understand how it really worked....

[masterbesser]

you guys aren't worth the money, and you aren't that smart.

hate to break it to you.

you will get it regulated like all the other sheep. if you were doing something that significant and complex no one would know about it anyways.

so enjoy the albatross.

[Anal_yst]

@ Thoth

I wish all of our readers understood that simple reality, although very clearly @masterbesser @338am seems to be missing the point.

I will, however, forgive such transgressions given the late night/early morning timestamp, it was a rough night in Maryland.

[thoth]

MasterBesser - it's instructive how you lump people together, assuming that because I said the org chart would be too difficult for a congressman to understand, I was a hedgie.

As a matter of fact, I am not, nor will my industry become any more regulated, and I am definitely worth more than I get paid right now. But I do get to work on some cool projects in a highly educational time period, so I don't bitch about what other do or don't make.

[Ass_oat_tee_ette]

http://www.hulu.com/watch/56370/30-rock-generalissimo

Dude anal_yst you're on 30 rock

[Anal_yst]

@ Ass_oat_tee_ette

Huh?

[Ass_oat_tee_ette]

bankers working as GE interns drinking tracy jordan under the table. pretty funny.

[JL]

Good deconstruction of this perennial political favourite - same bull coming out of the EU. It's just a power grab to me, those pols can't stand the fact that anything remains outside their (useless) purview.
Drives me fucking nuts that they can't get their shit together long enough to put a coherent plan to get the economy out of this mess. Solutions first, regs later.

[Cheap Escorts]

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[Cheap Escorts]

somehow came across your blog while looking for a post for a class, but I have to say I'm glad I found it ...will definately subscribe sometime.

[Oralee GolubRubye HeeterPeter LochridgeDodie Twining]

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