Bank bailout a `sweet deal': Hedge fund managers

TheStar.com - Business -

Bank bailout a `sweet deal': Hedge fund managers
November 14, 2008

WASHINGTON–Hedge fund managers, who rank among some of the world's shrewdest deal makers, told Congress the U.S. government's bank capital injection program did not have enough strings attached.

"The current terms are overly generous to recipients," said John Paulson, president of hedge fund Paulson & Co.

He was among five hedge fund managers questioned yesterday by the U.S. House oversight and government reform committee about Treasury Secretary Henry Paulson's management of a $700 billion (U.S.) bailout program to unfreeze credit markets through taxpayer investments in financial firms.

Treasury's Henry Paulson said Wednesday that the government had largely abandoned its plan to buy toxic mortgage assets in favour of making direct investments in financial institutions and shoring up consumer credit markets.

John Paulson said any bank receiving federal funds should halt cash dividends on common stock and restrict cash compensation to executives.

He also said the government should demand a higher dividend payment from participating banks, possibly around 10 per cent instead of the 5 per cent rate now in place.

James Simons, a mathematics professor-turned-investor who now heads Renaissance Technologies, called the bank injections "quite a sweet deal" for firms requesting the funds.

John Paulson, Philip Falcone, Kenneth Griffin, George Soros and Simons were called to testify at the hearing about the role of hedge funds, their tax status and regulation. Each executive earned, on average, more than $1 billion last year.

Soros, the billionaire chair of Soros Fund Management, said the Treasury department's execution of the program "is not adequate or acceptable." Soros said the government should have made the cost of capital more expensive, giving participating banks an incentive "to put it to good use to get a good return by actually lending," he said.

The U.S. has so far dedicated $250 billion for bank capital injections under the Troubled Asset Relief Program.

Reuters News Agency