THE INDEPENDENT: Hedge fund 'masters of the universe' face Congressional grilling over their role in the global credit crunch
The five best-paid hedge fund managers – who between them made $12.6bn last year, even as the financial world began to crumble around them – were hauled before the US Congress yesterday and assailed over their huge salaries, their tax perks and their contribution to the credit crisis that has engulfed the globe.
In a piece of public theatre that reflected not just the present crisis, but also a decade or more of vastly increased income inequality, the five men declared themselves innocent of causing the market meltdown and insisted that their riches reflected hard work and investment insight.
As one Congressman, Elijah Cummings, put it, "these are five citizens who have more money than God", and he proceeded to tear into them over rules that have allowed them to pay a fraction of the tax an ordinary teacher, firefighter or plumber might pay.
Philip Falcone, whose Harbinger Capital is one of the world's biggest hedge funds, stressed his humble beginnings as one of nine children living in a three-bedroom home in Minnesota. "My father was a utility superintendent, my mother worked in a local shirt factory," he said. "I take great pride in my upbringing and it is important for people to know that not everyone who runs a hedge fund was born on Fifth Avenue."
Although many hedge-fund managers live lives of conspicuous consumption, they prize their privacy as tightly as they cling to the rules – or lack of them – that enable them to keep their trading strategies secret. Their testimonies under oath in the giant, high-ceilinged, oval committee room on Capitol Hill yesterday took them out of their natural habitat, and for all their status as masters of the universe, several seemed intimidated.
John Paulson – who suddenly joined the ranks of billionaires after betting in 2005 that Wall Street was awash with overpriced investments in mortgages that millions of Americans would ultimately be unable to pay – was told more than a dozen times to speak up so he could be heard. Jim Simons, the mathematical genius whose Renaissance Technologies is among the most respected fund groups in the world, was told to stop "mumbling".
The hearing was the latest in what wags on Wall Street are calling the Waxman Witch Trials. The House oversight committee, whose chairman, Henry Waxman, has subpoenaed all the main players in the crisis, previously humbling Dick Fuld, chief executive of collapsed Lehman Brothers, and the bosses of credit rating agencies who, according to Mr Simons, "allowed sow's ears to be sold as silk purses". >>> By Stephen Foley in Washington | November 14, 2008
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