Hedge legislation

More control is better?

The Dublin marchThe Dublin march
For a while Binyam Mohamed, and probably for more than a while, dominates the news. By contrast the decision of the EU to tighten regulation on Hedge Funds is not so well reported, see The Times HERE. Mohamed was held in Guantánamo Bay for over four years and at the speed justice moves it may be at least that again before the true facts behind this case are revealed. Again by contrast, if the EU have got their position on Hedge Funds wrong, then it could take years to shake off the ill effects of these measures.

Bash a banker is a very popular sport at the moment, it is a team game and, rather like games at school compulsory, our politicians would like us all to participate; obviously they would, for while we are putting the boot into a banker we are not kicking them. But who is a banker? In the real of world of finance there are huge differences between the people you might meet behind the counter at your local bank and Hedge Fund managers. But in the pell-mell rush to be seen doing something, anything, then these finer points can be missed.

It's now well established that the restrictions placed on banks were the reason Hedge Funds were set up, so yes it was done to get around the rules but there was a benefit to the UK. In fact the Hedge funds 'worked' because the banks wanted them to. So, not only should we ask who is a banker but what is a bank? The Times describes these measures as 'draconian'. It is also suggested that the measures seek to go further than Gordon Brown would have liked.

Diplomats say Mr Brown agreed to restrictions on hedge funds in order to clear the way for an accord.

So did Brown 'cave in' to EU demands? He usually does, no doubt we will be told the truth eventually.

Another detail from the Times that's interesting is -

The EU communique also called for punitive action against tax havens. "A list of uncooperative jurisdictions and a toolbox of sanctions must be devised as soon as possible," it said.

Anyone sense a trade war coming up?

There is also a practical side to this that the Financial Times sums up well -

The difficulties in ensuring co-operation when cross-border institutions are involved were illustrated painfully during the bail-out of Belgium’s Fortis bank, for example, where three national regulators struggled to co-ordinate action. The piecemeal way in which short-selling bans were implemented by national regulators last year was a recipe for market confusion.

What is less clear is what should be put in its place – and, in particular, what reforms are politically achievable given the traditional refusal of many EU member states to cede authority in this area in spite of their leaders’ current enthusiasm for reform.

It could be that the EU is, as usual, strong on theory but weak on practical detail.

And naturally the US will just love to go along with this won't they? If the EU is stupid enough to think it can rule the world, remember that Brown thinks it's his duty to save the world, the battle lines between the EU and the US will be drawn up sooner rather than later. Perhaps even before the G20 meeting that Brown has high hopes for. Not least being an outcome he can take the credit for and so begin his electioneering. Alas there is a problem with all this.

The US might not want to restrict its financial sector either in the same way as the EU or to the same extent, likewise China. It may be the countries of Europe want to relinquish their independence but it should not be assumed that this applies universally. Also it should not be assumed that draconian is the 'right thing to do'. What if the EU has got it wrong and the US recovers sooner as a result? Brown is so quick to tell us “I whunt to wuk with Barack Obama”. What if Obama is not so keen, sensing that Brown is a loser and the EU is wrong?

Last weekend a crowd estimated between one hundred thousand and one hundred and twenty thousand marched in Dublin (see photo from the Times above right) to protest about the financial crisis in Ireland, that's an impressive number of people. It's only a few months ago the Irish banking system collapsed. If these protesters have to wait a long time for things to improve then their anger will not be contained.