NYT Live-Blogging the Hedge Fund Hearing today

[seemslikeadream]

http://dealbook.blogs.nytimes.com/2008/11/13/live-blogging-the-hedge-fund-hearing/?ref=business

Five of the nation’s most highly paid hedge fund managers testified before a House committee on Thursday, as lawmakers turned their attention to what role hedge funds may have played in the recent financial crisis and whether these private investment pools may need stricter regulation.

The money managers appearing before the House Committee on Oversight and Government Reform earned an average of $1 billion each last year, Representative Henry A. Waxman, the California Democrat who is chairman of the committee, said in his opening remarks. They are Philip Falcone of Harbinger Capital Partners, Kenneth C. Griffin of Citadel, John Paulson of Paulson & Company; James Simons of Renaissance Technologies, and George Soros of Soros Fund Management.

Below is a running blog covering some of the questioning during Thursday’s testimony, with the most recent items at the top:

2:03 p.m. | The Hearing Adjourns: Mr. Waxman thanks the five men for attending the hearing, and he reiterates that unregulated hedge funds can present a “systemic risk” to the markets and the economy.

1:56 p.m. | Now, “Truth in Leverage”: Representative Darrell E. Issa, Republican of California, asks Mr. Soros whether “a good, quick beginning” to regulation would be to require “truth in leverage.” He said this would this go a long way toward preventing what has happened in the financial markets. Mr. Soros responds that “new-fangled financial instruments” are very complicated and difficult to understand. He says that regulators need to know what they are regulating, and that if they do not understand these instruments, they should not allow them.

1:47 p.m. | Truth in Advertising: Mr. Cooper asks whether it is possible to know if a hedge fund is truly hedged and mentions a Wisconsin school board that invested in a bunch of securities that got traced all around the world and eventually cost the board a ton of money. “There’s not truth in advertising,” said Mr. Cooper. Mr. Paulson encouraged pension funds to invest with managers who give them disclosure so they know what strategy they are undertaking.

1:43 p.m. | Tale of Two Paulsons: Representative Jim Cooper, Democrat of Tennessee, says “the headline of this hearing is Paulson v. Paulson” — John Paulson accusing Henry Paulson of mismanaging the bailout.

1:42 p.m. | Take a Puff: Mr. Simons, a known chain smoker, excuses himself likely to go have a smoke

1:40 p.m. | Executive Compensation: Representative John Yarmuth, Democrat of Kentucky, asks whether they have a concern about the corporate governance structure in this country and whether lawmakers should do something about executive compensation. Mr. Simons is a fan of profit-sharing for chief executives rather than stock options because “the latter is very volatile and you never know quite what he’s getting.” All of the others agree with Mr. Simons.

1:33 p.m. | Tax Rates: Representative John F. Tierney, Democrat of Massachusetts, calls carried interest compensation hedge fund managers get is not for managing their money -– it is for managing other people’s money. “That ought to be taxed as regular income,” he says. Mr. Griffin responds that most of his income is taxed at the highest rate, but disagrees with raising the tax rate on carried interest.

1:26 p.m. | Question of Fairness: Representative Elijah Cummings, Democrat of Maryland, says that his neighbor asked him this morning: “How does it feel to be going before five folks that have gotten more money than God.” He asks the five managers if it is fair that the hedge fund managers pay less than his neighbor.