Thursday, 16 October 2008

Hedge funds - give us back our money

This story in the FT today grabbed my attention:

"A group of the largest US hedge funds has called on the Bank of England to intervene to free an estimated $65bn (£38bn) in assets frozen in London in the collapse of Lehman Brothers, warning that delays “could be disastrous for UK plc”.

The funds, through the Managed Funds Association, said the scale of the problem was so great that it could undermine bank rescue plans as tens of billions of dollars would be kept out of the market. It was also likely to lead to the failure of some fund managers, said Richard Baker, chief executive of the MFA. The warnings come as hedge funds have been quietly shifting billions of dollars of assets out of London to the US, claiming that the US legal system provides greater protection."

This story seems strangely familiar. It vaguely reminds me of the non-dom tax fiasco. The basic outline goes something like this:

  • A wealthy group of citytypes in London want the government to do something on their behalf.

  • The FT runs a story about the issue, claiming that the UK economy is in grave danger if the government doesn't act.

  • A few days later, the government capitulates.

    So what about this "grave danger" to UK PLC. First, hedge funds are not deposit taking institutions. If they fail, only the investors and the fund managers lose. There is no threat to the payments system. Hedge funds are not banks and any direct threat to the real economy is minimal.

    Second, Lehman assets are frozen because Lehman is bankrupt. This country has bankruptcy laws in order to protect the legitimate interests of creditors. For the government to "intervene" and unfreeze Lehman assets would be an intolerable intervention into the legal process.

    As for hedge funds "quietly" shifting their funds to the US, it is their money and they can do what they like with it. If hedge funds feel their interests are better served by moving their money abroad, then I wish them well. Beyond that, it is not for the government, or me, for that matter to have any opinion on the subject.

    However, I am outraged how the city repeatedly uses the media to pressurize this government in such a blatant and corrupt manner. I am even more outraged that the goverment always seems to bow to this self interested rubbish.

    dearieme said...

    I think we should all be keeping an eye on Labour Party funding.

    Anonymous said...

    hedge funds are parasitical saboteurs.

    Why our fool politicians are beguiled by their thieving wizardry I don't know...

    Lets see some backbone.

    Barry said...

    Alice, using the media for one's ends is quite the norm in politics and has been since Victorian times. While your sentiment is understandable it not going to change anything, the darker secret has long required media complicity, that of keeping the public in the dark over who really is in charge of British fiscal policy. It of course is the colleagues in Brussels.

    Nick von Mises said...

    Hedge funds are not intrinsically evil. They are the suckers that have helped bail out much of the normal financial economy. Or more correctly, the investors in hedge funds are the suckers.

    I think the problem is many stupid councils and agencies will have invested in hedge funds through fund of fund structures and they'll be looking to pick the taxpayer's pocket by hiding behind the nurses or children.

    Alice Cook said...


    That wasn't quite my point. I have no problem with hedge funds using the media. I have a big problem with them using the media to usurp our bankruptcy laws. I have an even bigger problem with the government always listening to the city and doing basically whatever the wealthy want.


    Anonymous said...

    "So what about this "grave danger" to UK PLC. First, hedge funds are not deposit taking institutions. If they fail, only the investors and the fund managers lose. There is no threat to the payments system. Hedge funds are not banks and any direct threat to the real economy is minimal."

    So why didn't that apply for AIG then, which was also not a bank?

    Sad fact is that due to derivatives, no part of the financial system is "safe".

    RenterGirl said...

    I found it very hard to stomache the nausteating Ken Clarke blaming Labour for this vi the media on Newsnight). Who deregulated - well everything? Ever since then, Thatcherism has been the blueprint for the economy, under the mantra: the market is king/the market is always right/whatever the market wants and decrees is a panacea. And yes, Alice, the FT and other right wing (ok, all) press jump down the troat of anyone who dares to disdain this lie. Politicans maniupulate, and are then manipulated by the media, to the extent that Gordy had to pose with Thatcher to show that he was a 'safe' pair of hands.

    Isaac Roberts said...

    Normally I'd agree but in this case Lehman is simply acting as custodian, it's not the beneficial owner of the property in question and creditors will never have access to those assets.

    Similarly, a Lehman subsidiary in Hong Kong is a custodian of 12% of Rio Tinto, beneficially owned by Chinalco and Alcoa (who wanted to thwart BHP's takeover). The liquidators of that unit are also dragging their feet in transferring the stake out to another broker.

    In short - if a bank is holding property for me and it goes under, I'd want it back quick smart, because legally it's not theirs to begin with. The hedge funds are well within their rights to be pressuring for the release of their assets.

    Barry said...

    Alice, My perspectives are always aimed at trying to understand the broader context of events. In relation to what is going on this sequence of crisis is being used to further the aims of our rulers (Brussels). No national law or set of rules over hedge funds or anything else will stand in the way. In efect the turmoil in the financial world has presented those whose goal this is with an ideal opportuntity to pursue this agenda. It would assist your own analysis and that of your other correspondents if this is borne in mind. I am sorry I did not make this clear. Regards