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  1. Wealth
May 27, 2009

Routing the hedgies

By Spear's

Expensive regulation already proven on a dramatic scale not to work at all frightens the hedgies

The real point is this, the Hedgies and their ilk really don’t like the mindless rhetoric being thrown at them by the politicians over the moral and regulatory issues, which are much more dangerous and driven by so-called grandees in Euroville, a supine FSA and by the bugger in No.10, the one who’s just handed £6,000 to his brother from our taxes on his way out, and hence the two-fingered gesture from the high earners on the simpler issue of 50p. That’s their most direct way to the higher moral ground, that’s all.

In his reaction to the credit crisis, the one named after the colour brown has pontificated that there should be a Global Regulator, that Hedge Funds should be brought within new heavy regulation, a concept applauded on the Continent of the former concentration camps as they seek to destroy London, and offshore tax-havens should be cajoled into the gas chambers, worldwide.

That’s what really worries the Hedgies and Fund Managers, more expensive regulation that has already been proven on a dramatic scale not to work at all. And it’s all such muddled thinking by the so-called legislators that have still not got a clue as to what has happened on their watch, or what to do about it for the future, as they fiddle with their own expense claims.

Let us explain some simple home truths. First, the credit crisis was not caused by Hedge Funds, who kept to their borrowing and margin rules immaculately, and those that didn’t went bust with practically no loss to the banks and none to the taxpayer.

Second, off-shore tax havens did not play any unlawful role in this crisis whatsoever, they merely maintained capital offshore under their own applicable laws and regulations on a tax-efficient basis, but their reputation was usurped by the onshore banks and corporates who bent their onshore rules; if you send offshore operators packing, they will simply set up on the next hot beach that comes along, and Macau, Qatar, Dubai, Hong Kong and Singapore are ready and waiting.

Third, this crisis was not caused by speculators, any more than it was caused by virtually every MP in the Commons fixing their expense claims for swimming pools, chandeliers and horse manure, paid for from our taxes. Now all these silly leaks need plugging for the future, but there’s no need to go overboard.

Yes, put all short-selling on the screens, along with all derivatives like CDSs, and make sure the shadow banking SIVs and conduits are put on the originating bank’s balance sheets.

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For the best regulators are the markets themselves, so let them be fully transparent, available and clear, and at minimal cost and within clear and simple legislation such as Glass-Steagall, which worked for 66 years without worrying a single regulator.

No, this crisis was caused by the commercial banks going mad in the domestic residential and commercial mortgage markets and other similar nonsense, which was not picked up at all by over-staffed, expensive and inefficient governmental regulatory agencies in the Anglo-sphere and Euro-zone areas.

The regulators and the governments went to sleep on the switch, including on their own public finances. And 50p higher rate tax is not going to cure any of that failure, it will just make things worse for their revenues, as we have seen before, namely the Laffer curve effect, when higher rates yield less revenue.

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