There was a story that appeared in the WSJ last week about how the Justice Department was investigating a number of large U.S. hedge funds to see if they acted in concert to drive down the euro.
This is an example of how misguided and backward our policy has become.
First, the idea that a handful of hedge funds can manipulate the euro, a currency based on an economic zone whose output is bigger than the entire output of the U.S. is patently ridiculous.
But if it's true that a half dozen or so hedge funds did collude to push the euro down then the Justice Department's reaction seems hypocritical. That's because it didn't seem to have any problem when hedge funds and other speculative entities pushed down the value of the U.S. dollar, or drove up the price of gasoline or heating oil or wheat or corn or sugar in the past several years, causing Americans to suffer when they were already suffering from job loss and a dire economy.
Seriously, where was the Justice Department then?
Are they saying to us that it's okay if this stuff happens to Americans, but watch out if the Europeans fall prey to speculative attack? Do European workers and families have more rights than Americans? No other conclusion can be drawn when you look at the response.
Perhaps it's all part of the current administration's desire to be loved by the rest of the world. That makes it okay for Americans to suffer, but not Europeans? And we are the ones responsible??
I am against just about everything that hedge funds stand for these days. They're dangerous and what makes them dangerous is that they comprise huge pools of money that are run by people who don't have a clue of what they are doing. It's like giving firearms to children. They're a bunch of gunslingers and they've created a Wild West type of atmosphere where innocents get hurt or even killed!
Contrary to what you hear from industry associations and from the halls of academia, heldge funds don't do any good at all. All that tripe about providing liqudiity and assuming the risk that regular businesses don't want to assume is just baloney. Hedge funds make markets illiquid by either distorting fundmaentals and manipulating prices or their activities raise risk and volatility making it more difficult for long-term investors and businesses who need stable conditions in which to save and invest.
What's ironic in the case of the euro, however, is that this could have been the one time that hedge funds' activities proved beneficial. With Greece and the other peripheral countries facing imminent financial and economic collapse and with the prospect of any meaningful bailout unlikely (there is no overriding fiscal authority in Eueope that can do that) a lower euro would have helped to assuage the situation by keeping exports strong. That would have been the one bright spot in an otherwise dismal picture. The crisis could have been averted. And if the hedge funds were the reason for that, then they should have been congratulated, not made the target of investigations.