Bush Fired SEC Chief Who Wanted to Regulate Hedge Funds (2005 ,with transcripts from Bill Moyers)

[JPZenger]

Bill Donaldson was the respected head of the Securities and Exchange Commission who wanted to regulate the hedge fund industry. For that reason, he was forced to resign in 2005. The two Republicans on the SEC who fought his efforts are still on the Commission.

Here's excerpts of a 2007 interview by Bill Moyers of Mr. Donaldson:

http://www.pbs.org/moyers/journal/10122007/transcript4.html

MOYERS: But you were one of the first that I remember calling for regulation of the hedge funds, when you were at the SEC. Why did you want hedge funds regulated? What's dangerous about them?

DONALDSON: Well, these are private pools of capital. They originally started out as a way of investing by both going long and short stocks, supposedly market neutral, as they say. But through the years, the name "hedge fund" has been applied to any pool of capital that is not registered under the SEC--

MOYERS: Unregulated?

DONALDSON: Well, it-- yes. And this has grown, like Topsy. Latest figure's $1.7 trillion of money in hedge funds today versus-- that's ten times growth in less than ten years.

Through a quirk in the regulatory structure hedge funds are not regulated like mutual funds are, or like investment advisors are, or like investment management and brokerage firms are. This is, I believe, just crazy, that we can have, you know, $1.7 trillion dollars. On some days, hedge funds account for 50 percent of the volume on the New York Stock Exchange. So it seems like we ought to at least understand what's going on in the hedge fund business.

DONALDSON: And big risks. And the problem-- the thing that I think people don't understand is the impact that hedge funds can have on the marketplace itself...But the real issue is every time a hedge fund buys or sells something, it's doing it with the public, with institutions, with the market. And I think we need to know a lot more about the techniques that are being used in the marketplace itself. ... The SEC is-- that's its role: investor protection. And a protection of the markets themselves, to make sure that they're being run properly.

ROBERT KUTTNER: And I would add that there are two purposes to regulation. One is to protect investors; the other's to protect the whole system from systemic risk, from meltdowns. And when people talk about George Soros can take care of himself, people forget that other purpose of regulation, it's to protect the whole system. And the other problem is that pension funds and university endowments and-- the endowments of charities are now investing in hedge funds. So it is funds that sort of-- "

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Here's an excerpt of a 2005 article in the New York Times about Donaldson leaving the SEC:

"...he often sided with the agency's two Democrats to the consternation of the two other Republican commissioners, Cynthia A. Glassman and Paul S. Atkins, and some in the business community.

The agency's rulings provoked a corporate backlash that in recent months has become emboldened, gaining significant momentum as Republicans have become more powerful in the Senate and as the White House feels less constrained in the president's final term.

The groups have complained about the agency's decision to impose tougher regulations on the nation's hedge funds and mutual funds."

[BlooInBloo]

1. I thought he couldn't fire the head of the SEC?

[Ian David]

3. The Constitution is a set of REGULATIONS and Bush is a DE REGULATOR. n/t

[JPZenger]

5. Officially the SEC hires and fires the director

Bush let it be known he wanted Donaldson out. The Republicans on the SEC already opposed Donaldson's efforts to regulate hedge funds. Donaldson resigned right before he would be fired.

[Supersedeas]

2. Shock Doctrine -- almost like the financial catastrophe was orchestrated

[panAmerican]

4. Giving you that 5th rec, but fix the typo "...who faught his efforts..."

[JPZenger]

6. Donaldson: People buying them don't understand them

Here's another excerpt from the Moyers interview:

"WILLIAM DONALDSON: Well, I think we've created a number of instruments in this country in particular derivatives and so forth and so on. I think these instruments are not necessarily understood in their entirety.

BILL MOYERS: Let me tell you, I don't understand them.

WILLIAM DONALDSON: Well I'm not sure that many of the people that buy them understand them. I have a feeling that somewhere there's an institution that's just bought a derivative and they don't understand what they bought."