Free Advice From Masters of the Universe

The lecture series previously featured such failures as Alan Greenspan, Richard Fuld of Lehman Brothers shame and the credit agencies that stooped much too low to make a buck. The hedge fund heavyweights are getting much more deferential treatment, since their culpability in the financial crisis is much less obvious. Rep. Waxman, in his opening remarks, sought their counsel on the financial crisis as the "most successful and knowledgeable investors in our financial markets," and only secondarily concerned himself with the issues of hedge-fund regulation.

Liberal lion George Soros delivered the cheerful news that "a deep recession is now inevitable and the possibility of a depression cannot be ruled out." He seems preoccupied with feedback loops -- the one between the collapse in asset values and the resulting strain on the real economy, as well as the interaction between cheap credit and rising asset values in a market bubble. His proposed solution is to explicitly charge central banks with keeping such bubbles in check, using not just interest rates but also capital requirements as well as behind-the-scenes arm-twisting. Although the latter would seem to favor a hedge fund with banking contacts much more than the average investor.

John Paulson of Paulson & Co., who's made his investors rich by with purchases of credit-default swaps that soared as housing and banking tanked, took a brief victory lap before targeting his whale: the government's ill-fated TARP rescue plan. Now that the Treasury has come around to Paulson's long-standing advice to use the money for capital injections rather than debt purchases, can it be long until President Obama comes around to his view that U.S. banks are getting a sweetheart deal at the expense of the taxpayer? Paulson notes that private investors and European governments are getting double-digit interest rates on their preferred investments as well as valuable warrants, whereas Joe the U.S. Taxpayer only gets token warrants and a 5% rate. It's not too late to demand a better return on future capital infusions from the public purse. Paulson believes we're not even half-way through this rescue mission, assuming capital needs of $650 billion after the last TARP dollar is spent.

Math whiz James H. Simons of Renaissance Technologies, in thinking about "how we may best get out of this hole," prescribes keeping "as many people as possible living in the homes they now occupy, even if their mortgages are in default and they have negative equity in their property," in order to support home values and therefore the value of securities backed by mortgage debt. He also proposes that public pension funds establish a non-profit credit-rating agency to be financed by bond buyers, eliminating conflicts of interest between debt issuers and the commercial agencies they pay. As for hedge fund regulation, he says there's already plenty of that around, though "regulation focused on ensuring market integrity and market stability would be useful and welcome," he testified.

Philip A. Falcone of the activist Harbinger Capital Partners stressed his working-class roots and personal struggles, right down to the fact that by 1994 he "was so 'financially challenged' that the power in my apartment was shut off because I could not afford to pay the electric bill." So if you're reading this by candlelight, take heart. Unfortunately, Falcone kept quiet on how we get from the current power outage to a future that's gloriously bright. Citadel Investment Group CEO Kenneth Griffin also proved stingy with advice, beyond the necessity of a clearinghouse for credit default swaps. But perhaps he needed to rush out to find more collateral for his creditors.