No need for regulation regulating could cause all the

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No need for regulation. Regulating could cause all the hedge fund activity to flow into another unregulated format. o Should not be regulated because hedge funds are a useful, counter cyclical investment class (can make money even when market is falling). o Fraud is no more frequent with hedge funds than with mutual funds. Fund managers usually invest a substantial amount of their own capital into the fund, so their reward depends strongly on the return the fund earns for investors. reputational incentives prevent them from cheating out customers as they can only attract new investors by providing a good return on existing funds. o Investors have a good amount of transparency already: a lot of funds disclose info about their portfolios monthly to clients If you did regulate, Hedge funds would find unregulated market – move offshore. EXTRA about MF and HF: mutual funds and hedge funds are managed portfolios. a manager or group of managers picks securities they feel will perform well and groups them into a single portfolio. portions of this fund are sold to investors who can participate in the gains/losses of the holdings. main adv. to investors is instant diversification and professional management of their money. HF managed much more aggressively than MF. take speculative positions on derivative securities such as options and can short sell stocks – typically increases leverage and thus risk of a fund. HF can also make money when market is falling. MF cannot take these leveraged positions and are safer. HF can be more flexible with its strategy. MF manager cannot be as flexible and change strategy as much. MF offers daily liquidity, HF does not. HF are available only to specific group of sophisticated investors with high net worth. 10/7/2019 8
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Chapter 10: Social Security- The Nature of Social Security Programs- Social Security Contributions- o To employer cost of social security tax is a cost of hiring labor just like a wage. o Employee ultimately bears the burden of the tax, if the employer didn’t have to pay it their wage would be that much higher Social Security Benefits- How Social Security Programs Work- Pay-as-you-go scheme: a pension plan that relies on one generation paying the pensions of another. Your contributions go to pay pensions of current retirees, in return your pensions will be paid out of those working then. The Problems of Social Security Programs- Worsening Demographics- o Because life expectancy is increasing, pensioners collect their pension for a longer period on average. We may run out of funds in 20 years or so Poor Incentive Effects- o Tax decreases activity on that activity that is now taxed o Tax on labor reduces employment Steps Towards Reform- o Gov. is faced with reducing benefits or increasing the contribution but neither is appealing o Increasingly turning towards savings for retirement funds Issues in Savings for Retirement Risk and Return
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