Treasury Secretary Timothy Geithner is right to worry about the European Union’s proposed “alternative investment fund” regulations, which he has branded “protectionism in drag.” “The proposal, which European finance ministers will discuss tomorrow in Brussels, would effectively bar hedge funds and private-equity funds from marketing themselves throughout the EU unless those funds are managed inside the bloc. The list of new requirements on location, leverage and disclosure for outside players is supposed to protect EU investors from shady offshore operators. But protestations from Brussels aside, their real purpose is to reduce tax and regulatory competition. Switzerland and the U.S. are no doubt the main targets, but the U.K. would also feel the sting. Since many of Britain's fund managers and custodian banks are themselves based around the world, they would essentially be forced to choose between Europe and everywhere else. Nor would these rules lower the risk of another financial meltdown. Despite what some regulators would have the public believe, hedge funds weren't the source of systemic risk during the panic.”