Obama to oversee banks, hedge funds
By carhart, ciera
Last Updated:4:56 PM EST 1/28/10 Section: News
President Barack Obama announced last week that when it comes to private equity, he would be the one who decides whether or not investment banks take risks.
"This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses," Obama said in his proposal to downsize commercial banks.
His statement indicated that the banks must choose between their involvement with deposits and checking or hedge funds and private equity.
"Firms will have to make a judgment whether they want to be banks, or whether they want to do hedge fund, private equity and prop trading activity," Deputy Treasury Secretary Neil Wolin, said. "Whichever judgment they make, our proposals will ensure that major financial firms are subject to consolidated, tough prudential supervision."
What exactly are hedge funds? Hedging means that the investors are gambling on which way the market will move, hoping that it will work in their favor. They are a part of an unregulated investment pool in which investors buy and sell at alarmingly fast rates in different markets and hope to make a profit from the differences in those markets. These funds are similar to mutual funds except they are usually reserved for the extremely wealthy and the rate of return is much higher. So if an investor were to invest large amounts of money into a hedge fund, he risks the chance that he will lose a lot of it.
However, he also runs the possibility of gaining money. If more money is a good thing, then why is this a problem?
Many of the hedge funds are unregulated. Obama hopes to rein in what the commercial banks are doing with their money. The investment banks create hedge funds and private equity, and support them by investing the funds with the money from the bank's customers. The Obama administration is trying to resolve the issue of whether the money goes to the banks or the customers.
The question that remains then is: can Obama control how much risk a person takes? Gary Castine from Encompass Advisors Inc. in Pittsford says that he wishes the government would take a more laissez faire approach to the situation.
"I don't agree with what they are doing. They're penalizing banks that did good things all along."
He believes that if the government would allow people to spend their money how they wish instead of regulating it, the economy might be able to pull itself up by its own bootstraps.
On Jan. 27 at 8 p.m, Obama will give his State of the Union address. According to The Chicago Sun-Times "the public has shifted the emphasis to two major policy issues: dealing with the nation's energy problem and reducing the budget deficit…in the percentage…reducing the budget deficit should be a top priority, from 53 to 60 percent."
ckc05241@sjfc.edu
"This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses," Obama said in his proposal to downsize commercial banks.
His statement indicated that the banks must choose between their involvement with deposits and checking or hedge funds and private equity.
"Firms will have to make a judgment whether they want to be banks, or whether they want to do hedge fund, private equity and prop trading activity," Deputy Treasury Secretary Neil Wolin, said. "Whichever judgment they make, our proposals will ensure that major financial firms are subject to consolidated, tough prudential supervision."
What exactly are hedge funds? Hedging means that the investors are gambling on which way the market will move, hoping that it will work in their favor. They are a part of an unregulated investment pool in which investors buy and sell at alarmingly fast rates in different markets and hope to make a profit from the differences in those markets. These funds are similar to mutual funds except they are usually reserved for the extremely wealthy and the rate of return is much higher. So if an investor were to invest large amounts of money into a hedge fund, he risks the chance that he will lose a lot of it.
However, he also runs the possibility of gaining money. If more money is a good thing, then why is this a problem?
Many of the hedge funds are unregulated. Obama hopes to rein in what the commercial banks are doing with their money. The investment banks create hedge funds and private equity, and support them by investing the funds with the money from the bank's customers. The Obama administration is trying to resolve the issue of whether the money goes to the banks or the customers.
The question that remains then is: can Obama control how much risk a person takes? Gary Castine from Encompass Advisors Inc. in Pittsford says that he wishes the government would take a more laissez faire approach to the situation.
"I don't agree with what they are doing. They're penalizing banks that did good things all along."
He believes that if the government would allow people to spend their money how they wish instead of regulating it, the economy might be able to pull itself up by its own bootstraps.
On Jan. 27 at 8 p.m, Obama will give his State of the Union address. According to The Chicago Sun-Times "the public has shifted the emphasis to two major policy issues: dealing with the nation's energy problem and reducing the budget deficit…in the percentage…reducing the budget deficit should be a top priority, from 53 to 60 percent."
ckc05241@sjfc.edu
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