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Comment by matt1 | Hacker News Reader

From the article: Treasury’s position is that if it doesn’t drag VC firms into the bureaucratic swamp, then high-rolling hedge funds playing with borrowed money will present themselves as venture funds to avoid regulation.

How does this work? Isn't there a clear distinction between hedge funds and venture funds?

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I note that the relatively little regulated hedge funds did NOT collapse and need a taxpayer bailout in the current recession.

Folks like to trot out hedge funds as bad guys, but in fact they do a ton of good, and prove that a lightly regulated environment works as well (or much better) than operating with the government's hands all over them.

I was under the impression that lack of regulation is what caused many of these mega banks to collapse. Mostly because the regulations preventing banks from merging with investment firms and such were lifted in the 80's or 90's. I'm not necessarily saying that regulation is a good thing, though. Just that there is a balance to be struck.

> I was under the impression that lack of regulation is what caused many of these mega banks to collapse.

You may be under that impression, but it's wrong. (It's being pushed by folks who like regulation.)

They were all regulated to the hilt. AIG especially.

Well, obviously mismanagement, greed, and stupidity caused them to collapse, but regulations forbade even the formation of such multi-national investment house+bank combinations in the past. I assume that the hope was that it would prevent banks from taking unnecessary risks with people's money. Which was obviously reversed with a good old, "private industry always comes up with the most efficient model, never fails, never commits fraud, and is always perfect" crap that like to get pushed around in government.

> I assume that the hope

Such a firm connection to reality.

How about the reality that regulation caused a lot of the problems?

Start with Fannie Mae and Freddie Mac. Ask whether anyone would be willing to make NINJa loans without a govt guarantee. And, if someone made such loans, ask whether anyone would buy them.

US Govt policy pretty much guaranteed that the mortage industry would take a huge fall. Even now, it's trying to keep people in houses that they can't afford. And, the money is coming from folks who bought what they could afford or rented because they couldn't afford to buy.

> Which was obviously reversed with a good old, "private industry always comes up with the most efficient model, never fails, never commits fraud, and is always perfect" crap that like to get pushed around in government.

The only folks who ever say that do so as above, attributing that belief to others in an attempt to cover up their lack of an actual argument.

Govt is subject to exactly the same failings, with one important difference - it gets to tax and coerce folks and there's even less connection to results.

Even the most corrupt company would have problems keeping Barney Frank around, yet he's still a major player in govt, driving housing policy....

Where did you get that? Multiple hedge funds collapsed. Their collapses weren't as public because hedgefunds tend to be very secretive but many, actually most of them closed their doors.

Also, hedgefunds like banks were the main cause of the meltdown because they were so leveraged when the market prices of their assets decreased even slightly they had to sell large chunks of their assets to cover their losses, which caused further decrease in prices, which caused further sales, which caused the death spiral of the entire economy.

Again the banks were more vocally criticized for this than the hedgefunds because the banks are insured by the federal government, but the hedgefunds were doing it just the same, and they are just as much to blame.

The only thing that you said that is true is that the hedge funds did not really take tax payer money. That is true because they had absolutely no possible argument to ask for taxpayer money. The federal government was already on the hook for the banks because it ensured them.

cough---LTCM---cough

Many hedge funds did indeed collapse. Their fall was not as loud as the fall of the Wall Street banks because the hedge funds at least had the decency not to ask for bailouts. More info at:

http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=13...

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