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.

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An organism found in dirt may lead to an anxiety vaccine, say scientists

Can dirt help us fight off stress? Groundbreaking new research shows how.

University of Colorado Boulder
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  • New research identifies a bacterium that helps block anxiety.
  • Scientists say this can lead to drugs for first responders and soldiers, preventing PTSD and other mental issues.
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Are modern societies trying too hard to be clean, at the detriment to public health? Scientists discovered that a microorganism living in dirt can actually be good for us, potentially helping the body to fight off stress. Harnessing its powers can lead to a "stress vaccine".

Researchers at the University of Colorado Boulder found that the fatty 10(Z)-hexadecenoic acid from the soil-residing bacterium Mycobacterium vaccae aids immune cells in blocking pathways that increase inflammation and the ability to combat stress.

The study's senior author and Integrative Physiology Professor Christopher Lowry described this fat as "one of the main ingredients" in the "special sauce" that causes the beneficial effects of the bacterium.

The finding goes hand in hand with the "hygiene hypothesis," initially proposed in 1989 by the British scientist David Strachan. He maintained that our generally sterile modern world prevents children from being exposed to certain microorganisms, resulting in compromised immune systems and greater incidences of asthma and allergies.

Contemporary research fine-tuned the hypothesis, finding that not interacting with so-called "old friends" or helpful microbes in the soil and the environment, rather than the ones that cause illnesses, is what's detrimental. In particular, our mental health could be at stake.

"The idea is that as humans have moved away from farms and an agricultural or hunter-gatherer existence into cities, we have lost contact with organisms that served to regulate our immune system and suppress inappropriate inflammation," explained Lowry. "That has put us at higher risk for inflammatory disease and stress-related psychiatric disorders."

University of Colorado Boulder

Christopher Lowry

This is not the first study on the subject from Lowry, who published previous work showing the connection between being exposed to healthy bacteria and mental health. He found that being raised with animals and dust in a rural environment helps children develop more stress-proof immune systems. Such kids were also likely to be less at risk for mental illnesses than people living in the city without pets.

Lowry's other work also pointed out that the soil-based bacterium Mycobacterium vaccae acts like an antidepressant when injected into rodents. It alters their behavior and has lasting anti-inflammatory effects on the brain, according to the press release from the University of Colorado Boulder. Prolonged inflammation can lead to such stress-related disorders as PTSD.

The new study from Lowry and his team identified why that worked by pinpointing the specific fatty acid responsible. They showed that when the 10(Z)-hexadecenoic acid gets into cells, it works like a lock, attaching itself to the peroxisome proliferator-activated receptor (PPAR). This allows it to block a number of key pathways responsible for inflammation. Pre-treating the cells with the acid (or lipid) made them withstand inflammation better.

Lowry thinks this understanding can lead to creating a "stress vaccine" that can be given to people in high-stress jobs, like first responders or soldiers. The vaccine can prevent the psychological effects of stress.

What's more, this friendly bacterium is not the only potentially helpful organism we can find in soil.

"This is just one strain of one species of one type of bacterium that is found in the soil but there are millions of other strains in soils," said Lowry. "We are just beginning to see the tip of the iceberg in terms of identifying the mechanisms through which they have evolved to keep us healthy. It should inspire awe in all of us."

Check out the study published in the journal Psychopharmacology.