The government cannot effectively regulate the hedge fund industry and it’s a good thing too, Robert Steel said yesterday. The setting was a Manhattan Institute conference. Steel, a former Goldman Sachs executive who is now the Treasury Department’s top domestic finance official, raised two original arguments against hedge fund registration and regulation. Since this is something we talk about a lot around here we found ourselves a bit surprised that we hadn’t heard these ideas before.
Steel, the Treasury undersecretary for domestic finance, also said it would be costly and impossible to train enough people to keep tabs on some 8,000 hedge funds.“I don't like the moral hazard of communicating a government all-clear,” Steel said at a conference hosted by the Manhattan Institute in New York today. The risk is that regulation “communicates confidence in a product that is riskier than normal investors should get involved in,” he said.
Both points are the sort of thing that are so obvious—once they’re raised. You instantly feel like you’ve known them all along.
Steel Says Hedge-Fund Regulation Risks 'Moral Hazard' [Bloomberg]
Posted by , Apr 27, 2007 10:58AM
nice misuse of "moral hazard." but does anyone who invests really think that SEC regulation = safety? (insert obligatory enron comment) besides, hedge funds are still subject to 10b-5, etc. i think this point is kinda dumb, and that's why you don't hear it that much.
also, no one is talking about enough staff to keep tabs of the funds. come on, for the life of the SEC there have never been enough people to keep tabs on ordinary public companies. just look at some of the interviews with former commissioners - it's all about spotting a few bad apples and making examples of them. similarly, the IRS doesn't have enough people to monitor all taxpayers. bullshit argument.