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Hedge Funds and the Financial Marketplace (E.M. Chang)

The Oversight and Government Reform Committee of the US House of Representatives held a hearing titled, “Hedge Funds and the Financial Market” on Thursday, November 13, 2008. The hearing examined systemic risks to financial markets posed by hedge funds and considered regulatory and tax reform proposals. Among the topics, the panels discussed three major issues:
1. What role have hedge funds played in our current financial crisis?
2. Do hedge funds pose a systemic risk to the financial system?
3. What level of government oversight and regulation is appropriate?

Over the last decade, hedge fund holdings reportedly increased five-fold, to more than $2 trillion. The role of the hedge fund industry in the current financial system is becoming more important given this dramatic growth trend. However, hedge funds are virtually unregulated, and not required to report any information on their holdings, their leverage, or their strategies to any government agency. The opacity and non-transparen…