Congress to Billionaires: Where Did We Go Wrong?

Hedge fund managers face more praise than scrutiny from panel.

November 13, 2008— -- What was expected to be a showdown turned into more of a tickle fight Thursday, as five of the world's top hedge fund managers faced a quizzical congressional oversight panel.

"What it is that you knew that allowed you to be so far ahead of everyone else?" asked a genuinely curious Rep. Edolphus Towns, D-N.Y., of the witnesses, some of whose multi-billion-dollar funds had largely escaped the worst of the economic crisis so far. "Do you have any opinions on TARP?" asked Rep. Tom Davis, D-Va., referring to the U.S. government's $700 billion economic bailout program.

Softball questions like those are rare in the House Oversight and Government Reform Committee these days. Recently, the panel hasn't been a fun place for Wall Street types in particular.

Last month, it ambushed Lehman Brothers chief Richard Fuld with documents showing his firm had sought $23 million in bonuses for executives at the same time it was filing for bankruptcy. Shortly after, the committee whacked ex-CEOs for flailing insurance giant AIG with documentation of a lavish getaway its executives enjoyed while their company went down the tubes.

Going into Thursday's hearing, it looked like the committee might again be loaded for bear. Stern letters the committee sent to each of the five hedge fund managers a month earlier asked the men to submit copious documentation showing income and salary for their top executives, their funds' involvement with mortgage-related investments, the danger posed to the economy by the debt their funds carried, and their tax treatment.

But unlike those executives, whose firms' failings played key roles in the economic crisis, these billionaire managers captain ships which have found calm waters amidst the tempestuous global economy, and the panel had mostly praise and curiosity for the five.

Tough questions were rare. Rep. Elijah Cummings, D-Md., raised the issue of the men's billion-dollar-plus incomes last year. "That is a staggering amount of money and I'm not knocking you for it," he said, but observed that a portion can be taxed at a rate three-fifths what most Americans are taxed on their income. "My quesion for you is whether this is fair," floated Cummings. There was no unanimity among the panelists, and the questioning moved on.

Billionaire Hedge Fund Managers Answer Questions

John Paulson of Paulson & Co. found among the lawmakers a willing audience for his criticism of the government's bailout efforts, chiding what he believes are the Treasury Department's too-generous terms with U.S. banks receiving billions in taxpayer dollars.

"The current terms are overly generous to the recipients," he said, noting that other governments and even private investors like Warren Buffet's Berkshire Hathaway had negotiated better deals while putting money into financial instititutions. "It's an indirect transfer of wealth from taxpayers to these institutions," he said of Treasury's effort.

Paulson also criticized the U.S. effort for failing to insist that banks taking bailout money cap executive compensation and bonuses and refrain from handing out cash dividends to their shareholders.

"I was thinking we probably have the wrong Paulson handing out TARP [bailout] monies here," quipped an appreciative Rep. John Tierney, D-Mass. "I daresay you can't walk down the streets at home in any of our districts that people don't make that point. 'What the heck are we doing giving money to these institutions, and they're out there giving bonuses, paying high salaries without being capped?'"

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