U.S. Representative Henry Waxman plans to question the world’s richest hedge fund managers tomorrow about their role in the global markets selloff and whether their industry is a risk to the financial system.
George Soros, John Paulson, Philip Falcone, James Simons and Kenneth Griffin have been called before the House Committee on Oversight and Government Reform to discuss everything from their use of borrowed money, their bets against subprime mortgages and how much they earn from their funds.
Waxman, who last month grilled Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., about the bank’s demise, doesn’t have jurisdiction over securities- industry legislation. Even so, his interest suggests the $1.7 trillion industry faces increased scrutiny and regulation next year after President-elect Barack Obama takes office.
Regulators have already taken some steps. In September, the U.S. Securities and Exchange Commission temporarily banned the short sale of some stocks. The agency now requires funds to disclose the shares they are wagering will tumble, though those reports won’t be made public. In a short sale, a trader borrows shares and then sells them immediately in the hopes they can be bought back later at a cheaper price
When you are short, you are not necessarily betting that the price would fall. You might be hedging or trying to remove beta or sector risk while investing.
I wonder what would these hedge fund managers would say. What would be the future of hedge funds? At least they outperformed index funds this year.
I really regret that some people would forget these people’s godlike accomplishments such as when Soros was short sterling in 1992 and baht in 1997 which those positions yielded his fund an enormous profit. Paulson accomplishments of shorting the CDOs and buying of credit default swaps for the BBB tranches of the subprime mortgages was also a godlike trade.
Yes these people are my heros.