Japanese Financial Daily: Hedge Funds A Greater Threat Than Terrorism

May 22 (EIRNS)--The failure of a large hedge fund could plunge the global financial system into a crisis, Japan's Asahi Shimbun newspaper warned in an editorial May 21. "The case for close scrutiny of hedge fund activities is strong," the paper said, noting that "many corporate pension funds and investment trusts are putting their money into hedge funds. This means that hedge funds are no longer affecting only the shady world of high-rolling speculators and that they have nothing to do with ordinary citizens. We want to know more about how these hedge funds are operated." What investments in which markets are the hedge funds making with their $1.5 trillion, how much money are they borrowing from financial institutions, and how much of the yen carry-trade borrowing are the hedge funds doing?

"If hedge funds are linked to the operations of financial institutions to the extent that the risks hedge funds are taking on pose a serious threat to the health of those financial institutions, then the financial regulators of major countries should instruct such financial institutions to ensure their relations with the funds are safe and sound. If the yen carry trade is generating excessive liquidity worldwide, thereby increasing risks in financial markets, the Japanese fiscal authorities need to consider policy responses to the problem," the editorial asked.

The Asahi Shimbun endorsed the continued discussion of hedge fund regulation at the upcoming G-8 summit in Heiligendamm, Germany June 6-8, saying "it is essential for nations to join together to grapple with the policy challenges posed by hedge funds from the viewpoint of protecting the health of crucial markets."