The hedge fund show from the Capitol Hill was impressive. The consensus seemed to be that leverage was to blame. The investment banks and other financial institutions (and almost everyone else) borrowed too much.
However, the hedge funds and their managers were not to blame. Those present admitted that they typically shy away from leverage and even agreed for the most part that more regulation (i.e. leverage limits) and transparency would be a good thing.
In my view, the crisis has many causes: The regulators who took a hands-off position on investment bank leverage and credit default swaps; everyone along the mortgage-backed securities chain who should have blown a whistle rather than passing the problem on; and, in my opinion the most culpable, the rating agencies, which allowed sows’ ears to be sold as silk purses.
- James Simons, Renaissance Technologies
I would suggest that most financial institutions should have minimum capital requirements, and I agree with Mr. Simmons that we need a new rating agency specializing in complex derivatives.
President Bush's free-market speech from Wall St. and the stock market touching bottom and then rebounding upward added to the day's great drama.
We're facing this challenge together and we're going to get through it together. The United States is determined to show the way back to economic growth and prosperity. I know some may question whether America's leadership in the global economy will continue. The world can be confident that it will, because our markets are flexible and we can rebound from setbacks. We saw that resilience in the 1940s, when America pulled itself out of Depression, marshaled a powerful army, and helped save the world from tyranny. We saw that resilience in the 1980s, when Americans overcame gas lines, turned stagflation into strong economic growth, and won the Cold War. We saw that resilience after September the 11th, 2001, when our nation recovered from a brutal attack, revitalized our shaken economy, and rallied the forces of freedom in the great ideological struggle of the 21st century. The world will see the resilience of America once again. We will work with our partners to correct the problems in the global financial system. We will rebuild our economic strength. And we will continue to lead the world toward prosperity and peace.
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