Friday, June 25, 2010

The Wall Street Elite Win, Again

I haven't written too much about the new financial "reform" package, because although it's clear the package is about crony capitalism, the devil is in the details. You would really need to go over it paragraph by paragraph and sort of diagram who benefits. John Carney has done a little digging on some of the more obvious crony features in the package. He emails:
Last night's deal on Financial Reform put in place a version of the Volcker Rule that will cap bank contributions to hedge funds at 3% of their capital.

Guess what? This is great news from the bankers' perspective.

The limit doesn't touch management fees--the 2&20 where the real money is. And it helps bank sponsors of hedge funds in an unexpected and unintended way—it allows banks to reduce the amount of capital clients can expect them to contribute to a fund. It is very common for outside investors in hedge funds to demand that the sponsor provide a large amount of capital to the fund, to show that the sponsor believes in the fund and has “skin in the game.” Now banks can contribute just 3% and customers cannot expect or demand anything more.

In short, Wall Street wins again. Break out the champagne boys. The capital cost of sponsoring a hedge fund just went down.
John has more analysis at CNBC, here.

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