The Hedge Fund Hegemon

The recent volatility in global capital markets should give pause to those who say German leaders, who have been arguing for greater transparency in global hedge funds, are just sore losers US and UK policymakers, in particular, say the German whining is nonsense, and that hedge funds, along with other new age financial entities such as private equity firms are key innovators in today’s, global economy.

This debate is at the cutting edge of today’s globalization, yet it is clouded by a healthy dose of national self-interest. With New York and London the centers of global finance, the United States and Britain have enormous profits at stake. So it is convenient for them to downplay the likelihood that risks to the world’s financial system will be spread more evenly than the benefits.

German leaders, by contrast, must reckon with a populace that is deeply resistant to rapid change, particularly when it involves job cuts. Many German workers believe, as one trade unionist recently lamented, that takeovers are being driven by a philosophy of “buy it, strip it, and flip it.”

To be sure, the profits currently being earned by the leading financial firms are dizzyingly high. Goldman Sachs, the venerable Wall Street firm at the epicenter of financial globalization, paid more than $16 billion dollars in compensation to its 25,000 employees in 2006, and spun out another $9 billion for its shareholders – a total that is greater than the annual income of most African countries.