Who is to blame for the financial crisis? New versions

The global financial crisis is going on with huge losses being inflicted on the economies of almost all the countries worldwide both developed and undeveloped and making ordinary citizens to roam in perplexity over what was the real cause of the crisis and who is to blame for it. Meantime, the US Congress last week conducted a hearing in a series of meetings to examine the causes of the financial collapse where chairman of the House Committee on Oversight and Government Reform Henry Waxman turned to the major hedge fund players with the statements that their trading practices contributed directly to the crisis.

These are five citizens who have more money than God

 

In spite of all the so called status of the world sovereigns ascribed to the top executives practicing the hedge fund business those masters of the universe had to appear before the committee on Capitol Hill and bear testimony about their implication in the economy downturn. Some sources note that several of them seemed intimidated.

Among those hedge fund managers who were sworn before the testimony there were George Soros, chairman of Soros Fund Management LLC, James Simons, director of Renaissance Technologies LLC, John Alfred Paulson, president of Paulson & Co., Inc, Philip Falcone, senior managing director of Harbinger Capital Partners, and Kenneth Griffin, CEO and managing director of the Citadel investment Group.

While Soros distinctly uttered that ‘hedge funds were an integral part of the bubble’, John Paulson was repeatedly requested to speak up so he could be heard and Jim Simons was told to stop "mumbling".

After vehement accusations and attacks in regards with the incomes of these top managers they started defending themselves and explaining their outrageously high incomes in the crisis environment as the fruits of their hard work.

Hedge Fund Research reported that starting from 1998 and up to 2008 the number of hedge funds grew from just over 3,000 hedge funds to more than 10,000 and assets within the funds exploded from $374 billion to nearly $2 trillion.

Compensations paid last year to George Soros and Jim Simons amounted $2.9 billion. John Paulson was paid $3.7 billion, while Philip Falcone and Ken Griffin were paid $1.7 billion and $1.5 billion respectively.

Congressman Elijah Cummings said: “these are five citizens who have more money than God.”

In light of the obvious enrichment that ‘befell’ these persons the words of Falcone who appealed to his modest childhood in Minnesota rather than on the 5th Avenue and $14,000 his father earned a year looked at most poor.

Waxman noted that while their earnings were more than $1 billion each the hedge fund managers are taxed at rates "as low as 15%," which he described as a "lower tax rate than many school teachers, firefighters or plumbers pay."

All five of the highest paid and most powerful hedge fund managers stated that it is the “financial system itself” to blame for the meltdown.

Credit agencies were referred by James Simons as those who facilitated the sale of "sows' ears as silk purses" because of their "fanciful" ratings of the mortgage-backed securities.

In fact the Committee gathered these managers to discuss one more important point which is the regulation of hedge fund business. While Soros and others recognized that the need in regulation really exists yet they think that it should be restricted.

Andrew Lo, director of the Massachusetts Institute of Technology's Laboratory for Financial Engineering, noted: “To the average American, the current financial crisis is a mystery, and concepts like subprime mortgages, CDOs, CDSs and the seizing up of credit markets only creates more confusion and fear” and suggested that regulators foster increased transparency within the financial industry and create a special public relations team to convey financial information to the general population.

This however was not very welcomed with the managers who used to heavily protect their privacy in a fear that their trade secrets would be disclosed to competitors.

"The fund-specific information should not be released publicly, which could do more harm than good," said Simons.

Fake ratings, transparency in financial sector, high incomes of hedge fund managers and other topics of the Committee discussion last week remains no more than blah blah inasmuch as what is done cannot be undone. As it always was the case in the history the world will likely get out of the hard situation and all those regulations and faults with the finances will possibly turn out useful but we cannot go back and make it that these wise ideas come to them at that time in the past when everything was possible to change. Actually all the players know what has happened and they will add this to their arsenal to avoid like calamities in future but we, ordinary customers will always be let know that what they want us to know.