Zero Hedge

In a move to avert the next crisis, Geithner & Co. are seizing the political initiative and populist momentum to call for "New Rules of the Game"; i.e. more regulation. Looking past the rhetoric, it's interesting to assess each leg of the proposal independently.

- make it mandatory for "large" hedge fund, private equity firms and venture capital firms to register with the SEC, new disclosure requirements and potential inspections

First, it will be interesting to see what gets defined as "large". The specific number will give some indication of what the administration's true motives are; if the number is legitimately high to prevent a LTCM-type unwind vs. a generic $1B AUM limit to cover every mom and pop corner store in Greenwich to simply rattle the cages.

The disclosure requirements are going to require beefier compliance departments for (insert household fund name here) but the end result will be minimal, especially to the industry leaders which tend to hold themselves to higher audit standards. For example, the mega funds with a strong institutional base are already used to a detailed level of scrutiny of their operation.

- these same "large" pools of capital may be ordered to raise capital or limit leverage

This has the potential to really screw over some funds - it's all dependent on what "large pools of capital" is defined as, and what the target capitalization levels are set at. If the administration's philosophy is purely to prevent systemic risks, this shouldn't pose a serious damper to returns but Zero Hedge has a sneaking suspicion that some asset classes are going to be severely curtailed.

-would require a central clearinghouse for derivatives

Great move. The initial transition period will be more than offset by a lower probability of a Lehman London type scenario.

-new rules to require banks to build up capital during boom times for the slumps

Great in theory, but I'm short this idea being executed well. How do you define boom times, slump, adequate capital, and over/undercapitalized? It's foolish to think that banks won't figure out some way around this in 6 months to increase returns on capital.

- future plans to generally police fraud more effectively, plug gaps in regulation and collaborate with international counterparts on tax evasion and leverage rules

More details are really needed - there are a bunch of simple, logical actions that the government could take but that is far from a given.

As a final note, it's important to realize that this is far from getting passed. ZH is reasonably sure something to this effect will get passed but keep in mind that Congress will attempt to amend this to ride the populist wave as much as possible. This could result in additional, poorly thought out legislation, including curbs on compensation; we'll be watching this very closely.

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