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2011-06-12 — nytimes.com
Big insurers like the Mass Mutual Financial Group and Zurich Financial Services; hedge funds like Citadel and Paulson & Company; and mutual-fund companies like BlackRock, Fidelity Investments and Pacific Investment Management Company have all been making the rounds, according to documents filed by the regulatory agencies.
What they are all hoping to avoid is being designated "systemically important" by a council of financial regulators. That would require them to face stricter federal oversight and keep more cash on hand, which they fear would erode profits.
...
Hedge fund managers, for example, normally pride themselves on being Masters of the Universe. But armed with PowerPoint presentations and financial studies, representatives from some of Wall Street's most powerful funds, including D.E. Shaw and Company, Elliott Management and Caxton Associates, met with Federal Reserve staff members earlier this year to make one point: We're too small to matter.
This regulatory approach seems flawed to us because the problem is based on a pattern of behavior, not being a particular entity. That pattern of behavior is, of course, high leverage and disconnection between risk and consequences (either corporate or personal) for those taking the risks. Much of this could probably be addressed by simply not providing bail-outs, but at this point no one believes the government will simply stay out of crashes (except perhaps providing resolution and bridging functions).
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