Hedge Funds Need No Oversight

Question: Why didn’t hedge funds require bailouts? (Arnold Kling, Econlog)

Marc Lasry: I think it's pretty obvious. I mean, there was no hedge fund that was leveraged 40 times. There's no hedge fund that was leveraged 20 times. So there was always this focus, because people I think focused on the individual investor, and people were worried about fraud within a hedge fund. It's amazing when you look at it, if you really look at sort of '08, even '07, if you look at the amount of money that was lost in hedge funds, just from fraud, right? Or funds blowing up and closing down. It was pretty de minimis. And when you look at what happened, I think, with financial institutions, the dollars that people talk about is sort of trillions of dollars. So -- and the reason for that is because of the leverage; it's not because of the equity that was involved. So I think on -- I think there was just a real lack of understanding, and it was easier to sort of pick on hedge funds because people believed that banks were safe. And I think what was clear, and what's been show, is that it's really the banks that needed the oversight, not the hedge funds.

Question: Is there too much emphasis on going public in the US? (Arnold Kling, Econlog)

Marc Lasry: Yeah, I mean, I think there is. I think part of the reason is there's a big focus on -- that people want to sort of monetize the value that they have in a company, and by doing that you go public. I think being private -- there's a huge amount of benefits in being private, but ultimately the reason people go public is to monetize and to capture that value.

Question: What do you think of the practice of managers taking a company private and then doing an IPO a few years later? (Arnold Kling, Econlog)

Marc Lasry: You can't blame the people for doing that. I think what ends up happening is, they're taking it private, and they think -- when somebody takes a company private, they believe they're doing it at a very good price. And the reason they're going to take it public is, they think they're going to get a much higher evaluation. So I think the vast majority of people in that same situation would probably do the same thing. Does that mean it's right? That's a different issue. But there's a huge amount of focus on sort of what people make. And as you look at that, I think that's why people end up taking companies public.

Question: Aside from capping salaries, is there anything the government should have done to make the American public feel better about the bailout?

Marc Lasry: Look, I think what they should have done was very simply said, we're putting our money in; we're going to be senior; we're going to get paid X; and we can end up doing anything we want until you take us out. I don't blame the government for sort of imposing things. I just think they've gone a little bit too far, because what they're doing now is dealing more with popular sentiment as opposed to sort of business reasons. And that's the real issue. It's that the government has its own pressures. It's hard for -- you know, if you're voting for your congressman and you're saying, well, you voted -- and that congressman votes on the bailout -- to say to that congressman, look, why is that person making $1 million a year? I don't think that's right. I'm out of a job. And if I bailed him out, I want to limit what he can make. Well, I get it, but what they should have done was say, we're putting in money; we're going to be an investor, and we're going to get paid. And if we don't get paid, then ultimately we're going to end up owning this company.

Recorded on December 4, 2009

Prior to the crisis, regulators were more concerned with hedge funds than with banks. Why didn’t the government bailout hedge funds? Avenue Capital chairman Marc Lasry explains.

NASA astronomer Michelle Thaller on ​the multiple dimensions of space and human sexuality

Science and the squishiness of the human mind. The joys of wearing whatever the hell you want, and so much more.

Think Again Podcasts
  • Why can't we have a human-sized cat tree?
  • What would happen if you got a spoonful of a neutron star?
  • Why do we insist on dividing our wonderfully complex selves into boring little boxes
Keep reading Show less

How to split the USA into two countries: Red and Blue

Progressive America would be half as big, but twice as populated as its conservative twin.

Image: Dicken Schrader
Strange Maps
  • America's two political tribes have consolidated into 'red' and 'blue' nations, with seemingly irreconcilable differences.
  • Perhaps the best way to stop the infighting is to go for a divorce and give the two nations a country each
  • Based on the UN's partition plan for Israel/Palestine, this proposal provides territorial contiguity and sea access to both 'red' and 'blue' America
Keep reading Show less

Ideology drives us apart. Neuroscience can bring us back together.

A guide to making difficult conversations possible—and peaceful—in an increasingly polarized nation.

Sponsored
  • How can we reach out to people on the other side of the divide? Get to know the other person as a human being before you get to know them as a set of tribal political beliefs, says Sarah Ruger. Don't launch straight into the difficult topics—connect on a more basic level first.
  • To bond, use icebreakers backed by neuroscience and psychology: Share a meal, watch some comedy, see awe-inspiring art, go on a tough hike together—sharing tribulation helps break down some of the mental barriers we have between us. Then, get down to talking, putting your humanity before your ideology.
  • The Charles Koch Foundation is committed to understanding what drives intolerance and the best ways to cure it. The foundation supports interdisciplinary research to overcome intolerance, new models for peaceful interactions, and experiments that can heal fractured communities. For more information, visit charleskochfoundation.org/courageous-collaborations.