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The President's Working Group on Financial Markets released their long-awaited report on whether there should be more government regulation of the multi-trillion dollar hedge fund industry, and what do you think their conclusion was? This quote from Securities Industry and Financial Markets Association says it all:

"The President's Working Group has taken a thoughtful and judicious approach to many of the investor protection and systemic risk issues which surround hedge funds," said Micah S. Green, co-chief executive of the Securities Industry and Financial Markets Association, which represents hundreds of Wall Street firms.

Yup, that's right. As the NY Times reported, "The administration, in an agreement with the top United States regulatory agencies, said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation's financial system.

Instead, they announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles. The report follows the failure last September of Amaranth Advisors LLC, a Greenwich, Connecticut-based hedge fund that lost $6.6 billion on natural-gas trades. Hedge funds manage an estimated $1.4 trillion in assets.

Hedge funds, pools of capital that use a variety of trading strategies to earn returns for investors, are restricted to institutional investors and wealthy individuals. They are less regulated than other kinds of investments, such as mutual funds.

About a year ago, many hedge funds were forced to register for the first time with the Securities and Exchange Commission, but that requirement ended when an appeals court overturned the new rule. Since then, some lawmakers have debated whether there should be new regulations for hedge funds, whose assets are estimated to exceed $1 trillion worldwide.

The panel was led by Treasury Secretary Henry Paulson and included his counterparts at the U.S. Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. "Those who would believe that the role of regulators is to guard against any losses or somehow prevent losses or to prevent a hedge fund from having problems, they have a different philosophy about regulation than I do," Paulson said in an interview.

While hedge funds "bring significant benefits" to the financial markets, Paulson said in the interview "there is no doubt they give rise to certain challenges," including the trading of derivatives outside stock exchanges.

As Michael Panzer remarks over at Financial Armageddon:

Hopefully, these remarks are merely a bit of regulatory "sweet talk" to reassure investors and the public that things are under control. If not, then we've really got a lot to worry about right now.

Yup. Just wait until a Hedge Fund blow-up takes down the economy with it, where the "little guy" takes it on the chin, and we'll see then how well these rich guys' "hand-off" approach has worked.

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