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Banking

Financial crisis and hedge funds: Top five report to Congress

John Paulson, George Soros, Citadel’s Ken Griffin, Harbinger Capital’s Philip Falcone and Renaissance Technologies’ James Simons were all grilled by Congress in November about hedge funds’ role in contributing to the financial markets’ meltdown.

Pension funds: Widening the short-selling blame game

Discussions focused on hedge fund pay, who or what should be blamed for the meltdown and the need for regulation. The latter was almost unanimously agreed upon.

Soros admitted that funds had been an integral part of the bubble that had now burst but warned: "There is a real danger that excessive deregulation will be succeeded by punitive regulation. That would be unfortunate because regulations are liable to be even more deficient than the market mechanisms."

Falcone argued that short-selling did not put companies out of business but rather that bad management and overleveraged balance sheets were to blame. He also warned against an overreaction but said he supported increased transparency and more regulation that would require increased public disclosure from the hedge fund industry.

Griffin also said he supported "proper regulation". He blamed the financial crisis primarily on opaque derivatives, including credit default swaps.

Culpable raters

Simons blamed the ratings agencies, saying: "In my view, the crisis has many causes: the regulators who took a hands-off position on investment bank leverage and credit default swaps; everyone along the mortgage-backed securities chain who should have blown a whistle rather than passing the problem on; and, in my opinion the most culpable, the rating agencies, which allowed sows’ ears to be sold as silk purses."

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