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In G-20 early stages, Europe more aggressive than U.S. toward hedge funds

By Ward Harkavy in Featured, Obama Drama, Paul Volcker
Monday, Mar. 16 2009 @ 7:04AM

Overseas finance ministers want actual regulation; U.S. pushes only for more transparency.

For all the bluster in Congress about increased regulation of Wall Street, it's Europe that is leading the fight to regulate hedge funds.

In "Hedge-Fund Regulation Splits G-20 as Conference Begins," the Wall Street Journal reported over the weekend on the maneuvering in D.C. during the run-up to April 2's formal meeting in London of the world's biggest economies:

Finance ministers of 20 of the world's leading countries were split over how aggressively to regulate hedge funds as their conference on repairing the global financial system began Friday, showing the difficulty they face in hammering out any broad agreements.

Several European countries want the funds to be overseen similarly to banks, while U.S. and U.K. officials favor more disclosure over more regulation.

One question is how much clout President Barack Obama's elderly adviser Paul Volcker — a harsh critic of "financial engineering" by hedge funds and other Street manipulators — has. Reading between the lines, it seems clear that Obama's National Economic Council director, Larry Summers, may not be so keen on regulation, but Obama is under pressure from overseas. The WSJ notes:

President Obama on Friday said that the U.S. would not lag behind European efforts. "We're going to have to do some long-term financial regulatory work," he said after meeting with former Federal Reserve Chairman Paul Volcker, an Obama adviser and an advocate for much stronger regulation. "We've got to do some coordination with other countries in order to assure that what we do here in the United States corresponds with strong efforts overseas."

U.S. officials faced criticism this week from some European counterparts who said the U.S. wasn't placing enough emphasis on regulatory changes and pushing other countries too aggressively to boost their spending. U.S. officials have worked in the last day to counter these complaints.