Tougher bailout restrictions draw criticism

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A plan to further limit the federal government’s ability to issue bailout money drew criticism from an association of hedge funds Tuesday after an amendment that would leave them vulnerable to a new tax.

The amendment, from Rep. Brad Sherman (D-Sherman Oaks), is related to the proposed creation of a fund meant to give to government resources for bailouts and to be supported by a tax on businesses.

Sherman’s amendment would have allowed all financial institutions worth less than $50 billion to avoid the tax, since they would not be large enough to qualify for bailout funds. But hedge funds valued below $50 billion would still be subject to the tax.

In a letter to the House Financial Services Committee, the Managed Funds Assn., which refers to itself as “the voice of the global investment industry,” called the amendment unfair.

“Far from recognizing that hedge funds had no adverse impact on the financial crisis, the bill now perversely singles out hedge funds for more onerous treatment without any articulated policy rationale, thereby compelling them to unfairly shoulder a disproportionate share of the proposed assessment,” Richard Baker, president and chief executive of the association, wrote.

Although Sherman, a member of the committee, initially proposed an amendment exempting all firms with under $50 billion of assets from the tax, his colleagues did not support it, he said.

“They think these hedge funds may be doing some risky things, so they shod be subject to this,” he said.

Sherman also succeeded in gaining support for a series of other amendments to the bill, including one that would place a limit on the government’s ability to allocate taxpayer money for bailouts.

Currently, no limits or oversight model exists, Sherman said.

He succeeded in gaining support for a $4 trillion limit, far more than the nearly $1 trillion in bailouts allocated during the current fiscal crisis, but still a substantial advance in regulatory language, he said.

Written by Zain Shauk

December 2, 2009 at 5:07 pm

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