Financial Reform and Transparency in Hedge Fund Management

According to the article below, the Dodd-Frank Act seeks to restore trust and establish a sound regulatory framework for the financial services marketplace. It contains numerous components aimed at more transparency through the disclosure of relevant information and awareness of risk. Lets hope that it works that way.

   . . . June


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Press Release - Financial Reform Legislation and Transparency in Hedge Fund Management:
"September 11, 2010 /24-7PressRelease

With the economy sputtering, seeking to recover from the Great Recession that followed the financial meltdown of 2008, Congress worked for more than a year to develop comprehensive financial reform legislation. The result was the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed on July 21.

Dodd-Frank contains many features intended to require more transparency in financial transactions, so that elaborately packaged products do not create and disguise excessive risk that can harm unwary investors and consumers.

The concerns that led to the legislation reared their head during the 2008 crisis, but they had been building for years. Credit had been too easy to obtain for too many people. Subprime real estate loans, even for people with problematic credit histories or insufficient income, were the most obvious and egregious example. But the problems went beyond subprime loans. Investment banks and financial services firms package such loans and other forms of debt into numerous complex financial instruments that often were devoid of any transparency. And these same financial institutions took on more and more risk through credit default swaps and the use or ever-increasing leverage that placed the future existence of the institutions at great risk. Such risk is what led to the demise of investment banks like Lehman Brothers.

These financial problems infected the economy. Main Street, Wall Street and Washington spent much of 2008 and 2009 performing on-the-fly improvisation, trying to get credit flowing again in the midst of loan defaults, bankruptcies (including Lehman Brothers), rising foreclosures, high unemployment, and a huge government bailout of "too-big-to-fail" financial firms like AIG.

Read More . . .

Yes, Wall Street NEEDS To Change! Is It Pure Greed?

 It's refreshing to hear someone who's NOT blaming President Obama for every little thing. I've gotten so used to hearing this constant criticism that this article clearly jumped out at me. It's not as though Obama made all these decisions in a bubble. He had a team of apparently knowledgeable people helping him to decide what might possibly stop the country from going into total financial failure. Give him a break!
   .  . June


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Wall Street needs to change, not Obama:
PostPartisan   By Katrina vanden Heuvel  |  September 9, 2010; 1:43 PM ET


While no one said that reforming Wall Street would be easy for President Obama, the big-money backlash against his proposals has been surprisingly swift and screechy. In 2008, high finance donated about $40 million to Obama's campaign. As a recent editorial in The Post discusses, though, the financial sector 'is suffering a massive case of buyer's remorse.' There is a perception on Wall Street, The Post surmises, that Professor Obama doesn't have enough real-world business savvy to understand how high finance works, and the newspaper urges the president to cozy up to his one-time benefactors for the good of the nation.


But Wall Street clearly remains far more out of touch than Washington, and after reading some of the words emanating from the Masters of the Universe, one might plausibly wonder if America's lords of finance have spent the last three years living on Saturn.

Stephen Schwarzman, co-founder of the private-equity firm Blackstone Group, recently compared Obama's plans to tax private-equity compensation to Hitler's invasion of Poland in 1939. (He later apologized for the "inappropriate analogy," but he’s nonetheless going to have trouble living that one down.) And in his second quarter 2010 letter to investors, distributed on Aug. 27, Daniel S. Loeb, founder of the hedge fund Third Point LLC, wrote, "Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth and jobs.… Perhaps, too, a cloven-hoofed, bristly haired mammal will become airborne and the rosette-like marking of a certain breed of ferocious feline will become altered. In other words, we are not holding our breath." Andrew Ross Sorkin quipped that Loeb’s letter "sounded as if he were preparing to join [Glenn Beck's 'Restoring Honor' rally] in Washington."

Why such hysteria and hyperbole? Shining through the ridiculous rhetoric is pure greed.

Read on . . .

Federal Regulators Have Authority To Declare Wall Street Managers Compensation “Excessive.”

According to the article below, money managers and other financial firms will be required to disclose incentive-based compensation arrangements to federal regulators. The new law mandates that regulations be instituted to ban incentive-based compensation arrangements that encourage inappropriate risks. That seems to be pretty broad and could be open to interpretation. This is such a widely-used practice.

June

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Regulators given broad powers over managers' pay
By Doug Halonen September 5, 2010 6:01 am ET

Investment News: "Money managers are jittery about a provision in the financial-reform law that gives the Securities and Exchange Commission and other federal regulators authority to decide whether their compensation is “excessive.”

The SEC, the Federal Reserve, the Federal Deposit Insurance Corp. and other key federal agencies with financial industry oversight must jointly come up with compensation rules under Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

By April, the new law mandates that regulations be instituted to ban “incentive-based compensation arrangements” that encourage “inappropriate risks” — either because those arrangements result in payment of “excessive compensation, fees or benefits” or could lead to “material financial loss” to the firm.

Money managers and other financial firms also will be required to disclose incentive-based compensation arrangements to federal regulators.


Incentive- or performance-based bonuses are widely used by money managers, according to David Tittsworth, executive director of the Investment Adviser Association. “The bonus structure is in play,” he said.
“It's a big deal,” said Timothy Bartl, senior vice president and general counsel for the Center on Executive Compensation, a lobbying group that opposes mandatory say-on-pay proposals. “It has prohibitions and controls over private-sector compensation.”

The new regulation “could hurt the [money management] industry by increasing costs and uncertainty,” said Alan Johnson, managing director of the executive compensation firm Johnson & Associates Inc.
Some money managers declined to comment on the record, contending that they want to reserve judgment until they see what form the SEC's regulations take.


Read On . . .