American Sonderweg?

While the European Union is working on tighter regulation of hedge funds (see previous post), the Federal Reserve will effectively start acting as a prime broker for them, as the Financial Times reports: Hedge funds gain access to $200bn Fed aid. For a critical discussion, see also the corresponding entry in the investment banker blog naked capitalism with further links.

Hedge funds' access to Federal Reserve credit will take place in the context of TALF, the Term Asset-Backed Securities Loan Facility. (Fed's Press Release on the new rules for TALF.) In opening TALF for hedge funds, the Fed will help them get the leverage they need for their business model. In effect, the Fed will help hedge funds to stay alive in an environment that has become increasingly hostile for them. More on hedge funds' problems in times of the credit crunch can be found in FAZ: Kampf um die Zukunft.

This brings me to my question: Why keep hedge funds alive with public funds? I say: Don't do it! Let them wither away and die a natural death. Let them become the dinosaurs of economic evolution. One less problem to worry about.