No need for regulation. Regulating could cause all the hedge fund activity to flow into another unregulated format. oShould not be regulated because hedge funds are a useful, counter cyclical investment class (can make money even when market is falling). oFraud is no more frequent with hedge funds than with mutual funds. Fund managers usually invest a substantial amount of their own capitalinto the fund, so their reward depends strongly on the return the fund earns for investors. reputational incentives prevent them from cheatingout customers as they can only attract new investors by providing a good return on existing funds. oInvestors have a good amount of transparency already: a lot of funds disclose info about their portfolios monthly to clientsIf 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 intoa 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. 10/7/20198
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Chapter 10:Social Security-The Nature of Social Security Programs-Social Security Contributions-oTo employer cost of social security tax is a cost of hiring labor just like a wage.oEmployee ultimately bears the burden of the tax, if the employer didn’thave to pay it their wage would be that much higherSocial 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-oBecause life expectancy is increasing, pensioners collect their pension for a longer period on average. We may run out of funds in 20 years or soPoor Incentive Effects-oTax decreases activity on that activity that is now taxedoTax on labor reduces employmentSteps Towards Reform-oGov. is faced with reducing benefits or increasing the contribution but neither is appealing oIncreasingly turning towards savings for retirement funds Issues in Savings for RetirementRisk and Return
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