King Says Hedge Funds Didn’t Cause Him to Lose Sleep in Crisis
Bank of England Governor Mervyn King said officials didn’t lose sleep during the financial crisis worrying about the failure of hedge funds, whose model provides a potential solution in regulating the banking system.
“After the failure of Lehman Brothers and the need to recapitalize the banking system, it became very clear that hedge funds, far from being the villains of the piece, actually represented the attractive part of the solution that we might ultimately get to,” King told the Future of Banking Commission in London today. “The great thing is that none of us could have a sleepless night about wondering whether we cared about whether a hedge fund fails or not.”
The Bank of England and Prime Minister Gordon Brown’s government are seeking to revamp bank regulation to prevent a repeat of the crisis sparked by the collapse of Lehman Brothers Holdings Inc. in September 2008. King has said that he would prefer a financial system which allows lenders to fail without damaging the economy.
“Nobody believed that a hedge fund would be bailed out and they weren’t,” King said fast cash without a hassle. Whether a hedge fund failed was “up to the people who own it,” he said.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
King said 2,000 hedge funds failed during the crisis. Managers of such funds had been previously vilified at international meetings, particularly by European finance ministers, for being “the wicked people who were responsible for all the problems that we had,” he said.
In contrast, the way hedge funds operate may point to “one of the success stories of this crisis,” he said.
King spoke at a public hearing in London in front of a panel including lawmakers and economists backed by Which?, a consumer watchdog, to probe the future of the banking industry.
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