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What’s Really Behind the Urge To Investigate, Regulate Hedge Funds?

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As preparatory reading for this week’s Judiciary Committee hedge fund hearings, we recommend reading Hans Sennholz essay on how hedge funds reduce the harmful effects of the business cycle. He concludes by noting how hedge fund investment attracts regulators:

According to some estimates, hedge funds now hold some 30 percent of all credit derivatives and some 80 percent of unpaid and overdue debt. Many controllers and regulators are dismayed and upset about this development as risky credit transactions tend to disappear from their sphere of authority into unregulated "black holes" of hedge funds.

Hedge Funds Curb the Business Cycle