Yale University Law Professor Jonathan Macey says efforts to tar and feather hedge funds as a potential cause of systemic risk is a form of “regulatory McCarthyism,” and lashes out at efforts to regulate now to avoid a meltdown by a sudden HF-driven crisis. In a commentary in The Wall Street Journal, Macey says it’s just not going to happen, as he explains that the fact that the industry is “disaggregated and highly diverse” would prevent hedge funds from discombobulating financial markets. He adds that the oft-criticized secrecy is actually a good thing, as it prevents “herding” behavior, which could first cause a possible systemic risk. The current “light regulation,” is actually good for the economy as “the absence of hedge-fund regulation both increases wealthy by protecting property rights in information and eliminates systemic risk by preventing investors from rushing like lemmings to copy the investment strategies developed by hedge fund managers.” Macey says the risk accusations generally come “from people who have their own reasons for pushing for regulation. Bureaucrats seek to expand their own turf; corporate executive want to remain free of the oversight posed by hedge funds. He concludes the recent mantra uttered by opponents of more government control: “Hedge funds are already thoroughly regulated by market forces. Those that perform well for their investors will flourish. Those that perform poorly will whither. This is the best and only form of regulation that hedge funds require.”
