Paulson calls for hedge fund manager oversight

[OptionsPlease]

3:55p ET November 20, 2008 (MarketWatch) WASHINGTON (MarketWatch)--Treasury Secretary Henry Paulson on Thursday said he wants to see more hedge fund regulation as part of his proposal for creation of a new systemic risk regulator.
"To ensure the market stability regulator can fulfill its role, large, systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight," Paulson said in remarks at the Ronald Reagan Presidential Library in Simi Valley, California.
Paulson's blueprint introduced earlier this year would create an agency, called the Conduct of Business Agency, to oversee chartering and operations of financial firms, including hedge funds. (See )
Any oversight of hedge funds likely will involve the re-emergence of a registration rule adopted by the Securities and Exchange Commission in 2004 that was later struck down by a federal court. The rule, which required certain groups of hedge fund managers to register with the SEC and open up their books to periodic examinations, would need statutory authority to become effective.
Already work on hedge fund registration legislation has begun. Senate Finance Committee ranking member Charles Grassley, R-Iowa, said Nov. 13. he plans to reintroduce legislation requiring that hedge fund managers register with the SEC (See ).
In addition to opening up their books, Paulson's blueprint seeks to have hedge funds maintain a certain amount of net capital. Regulatory observers speculate that net capital requirements could include limits on the amount of debt hedge funds could take on. According to the blueprint, the agency could also require fund managers to disclose their positions more frequently than they already do.
David Brown, partner at Alston & Bird LLP in Washington, said Paulson's comments are notable. He added that in the statement, Paulson said he would extend the scope of oversight to "large systemically important" hedge funds, indicating that any restriction would be limited to certain funds.

[madcowdisease]

Originally Posted by OptionsPlease

3:55p ET November 20, 2008 (MarketWatch) WASHINGTON (MarketWatch)--Treasury Secretary Henry Paulson on Thursday said he wants to see more hedge fund regulation as part of his proposal for creation of a new systemic risk regulator.
"To ensure the market stability regulator can fulfill its role, large, systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight," Paulson said in remarks at the Ronald Reagan Presidential Library in Simi Valley, California.
Paulson's blueprint introduced earlier this year would create an agency, called the Conduct of Business Agency, to oversee chartering and operations of financial firms, including hedge funds. (See )
Any oversight of hedge funds likely will involve the re-emergence of a registration rule adopted by the Securities and Exchange Commission in 2004 that was later struck down by a federal court. The rule, which required certain groups of hedge fund managers to register with the SEC and open up their books to periodic examinations, would need statutory authority to become effective.
Already work on hedge fund registration legislation has begun. Senate Finance Committee ranking member Charles Grassley, R-Iowa, said Nov. 13. he plans to reintroduce legislation requiring that hedge fund managers register with the SEC (See ).
In addition to opening up their books, Paulson's blueprint seeks to have hedge funds maintain a certain amount of net capital. Regulatory observers speculate that net capital requirements could include limits on the amount of debt hedge funds could take on. According to the blueprint, the agency could also require fund managers to disclose their positions more frequently than they already do.
David Brown, partner at Alston & Bird LLP in Washington, said Paulson's comments are notable. He added that in the statement, Paulson said he would extend the scope of oversight to "large systemically important" hedge funds, indicating that any restriction would be limited to certain funds.

I'll simplify it for him. Limit all leveraged to 50%, period. No more using leveraged securites as collateral. You can't use options as collateral so why a piece-of-shi'ite bond? No more 10Xs leverage in the commodities markets. Simply limit the credit that is allowed in the markets and your risk of going through this crap again is significantly reduced. The problem always has been and will continue to be DEBT. Problem is our whole monetary system is built on debt. There is nothing tangible just a bunch of "notes" that you will be paid back with more debt notes.

[aiki14]

Originally Posted by madcowdisease

I'll simplify it for him. Limit all leveraged to 50%, period. No more using leveraged securites as collateral. You can't use options as collateral so why a piece-of-shi'ite bond? No more 10Xs leverage in the commodities markets. Simply limit the credit that is allowed in the markets and your risk of going through this crap again is significantly reduced. The problem always has been and will continue to be DEBT. Problem is our whole monetary system is built on debt. There is nothing tangible just a bunch of "notes" that you will be paid back with more debt notes.

I agree, to an extent. Return the capital requirements to reasonable levels (10x or 12x not 40x), and eliminate the leveraged collateral entirely, and while we're at it enforce the restrictions on naked shorting.