"Live-Blogging the Hedge Fund Hearing": Only Later

Below is a running blog covering some of the questioning during Thursday’s testimony, with the most recent items at the top: ( With my comments in parentheses )

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. ( "Systemic Risk is meaningless. Don't buy it. It will be used to excuse real human failures )

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. ( Calling Kurt Godel. Come on. There not that tough. )

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.( FRAUD )

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. ( How clever. What are the betting odds? )

1:42 p.m. | Take a Puff: Mr. Simons, a known chain smoker, excuses himself likely to go have a smoke ( He really needs a drink )

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.( Don't care. Too high, but don't care )

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. ( Tax as regular income )

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.

“Our tax situation is fair,” Mr. Paulson said. Mr. Falcone said hedge funds should not be treated differently than any other partnership like private equity. Mr. Soros and Mr. Simons said they support raising taxes on carried interest because they get paid for managing other people’s money. ( Tax as regular income )

1:23 p.m. | Speak Up: Mr. Shays, Republican of Connecticut, complains that Mr. Simon is “mumbling.” Mr. Simon apologizes and speaks up. ( This chair is killing me, can you hear me now )

1:20 p.m. | Tax Treatment: Representative Christopher Shays, Republican of Connecticut, asks about the tax treatment of hedge funds. Mr. Falcone believes hedge funds should not be looked at differently than any other individuals that pay long-term capital gains or any other real estate partnerships. Some regulators want to increase taxes on hedge funds by taxing their carried interest, or percentage of profits, at the higher ordinary income rate. Mr. Griffin acknowledges that he is the largest investor in Citadel’s biggest fund. Mr. Falcone also says he is the largest investor in Harbinger’s fund. ( Tax them regularly )

1:13 p.m. | Disclosure: Representative Carolyn B. Maloney, Democrat of New York. asks about requiring hedge funds to report information to regulators. Mr. Soros, Mr. Simons, Mr. Falcone and Mr. Paulson support providing more information to regulators. Mr. Griffin says it is very critical what the agencies do with that information. He calls for a common language to describe derivatives and calls again for a central clearinghouse like the one Citadel is setting up with the CME Group for credit default swaps. ( Won't really work )

12:50 p.m. | TARP: “Something has to be done about this paper.”

That was Mr. Simons’ comment on the recent strategy shift at government’s Troubled Asset Relief Program, which has cast aside its original focus of buying toxic mortgage securities in favor of direct equity investments in financial institutions. While Mr. Simons said he generally approved the change, he suggested that financial turmoil will linger until these troubled mortgage assets are in what he called “strong hands.”

Mr. Soros called the Treasury Department’s strategic shift a “great improvement” but also said that the new plan could be a lot better. He suggested that the government should underwrite capital-raising efforts for banks, and supply the equity only as a last resort. ( Clueless )

12:45 p.m. | Secret formula: Tom Davis, the Virginia Republican who is the committee’s ranking member, asked whether it was possible to force too much transparency on hedge funds. Mr. Griffin emphatically agreed that it was, comparing overly broad disclosure requirements to “asking Coca-Cola to disclose their secret formula to the world.”( Well, if they told everyone what they invested in, I guess that could be a problem )

12:35 p.m. | Systemic risk: In response to a question from Mr. Waxman, all five hedge fund managers generally agreed that hedge funds could pose a “systemic risk” to the economy, though Mr. Paulson and Mr. Falcone emphasized that they believed too much leverage — whether it is at hedge funds, banks or other financial institutions — was the primary risk factor. (Mr. Soros, in what seemed to be an inadvertent slip, twice referred to Long-Term Capital Management, the hedge fund that blew up in the late 1990s, as “Leveraged Capital.”)

Mr. Griffin stood out as a dissenter here, answering “no” to Mr. Waxman’s question about whether the systemic risk justified more federal regulation of hedge funds. ( I agree that leverage is the problem, and, oversight, not necessarily regulation, is a good idea )

12:30 p.m. | Before the questioning: The five hedge fund managers started off their testimony with prepared statements. ( I read three, but Soros wore me down )