As the financial reform debate draws to a close, one group that definitely isn’t fretting about the final outcome is hedge funds.
Despite controlling a lot of capital, and having a crucial role in the so-called shadow banking system, the bill won’t change business for them very much.
How come? Well for one thing, no hedge fund posed systemic risk during the crisis, so politicians aren’t that concerned with them (politicians are of course very backwards looking), but also part of it is that hedge funds have learned the art of lobbying.
Tim Carney at the Washington Examiner has an important story on how they learned to lobby, and the role of their best friend: Senator Chuck Schumer.
Basically it works like this:
- Schumer invites hedge funds to dinner and says “Hey guys, if you want to do well in Washington, you really gotta get better at lobbying.
- Then a Schumer staffer leaves and becomes a lobbyist for hedge funds (raising money for Schumer at the same time).
- Then Schumer ratchets up the populist rhetoric in order to squeeze more cash from the hedge funds.
- Finally he pushes through key regulations that help the big guys: SEC registration that imposes higher costs on small funds, and a spinoff of trading operations for the major banks.
It all works great. Big hedge funds get what they paid for. Schumer gets cash to run for re-election.
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