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In praise of hedges

Financial markets need regulation—they also need high-risk hedge funds

By Oliver Kamm   December 2005

The apparent arbitrariness and irrationality of financial markets do not inspire the admiration of liberal-inclined people. But many professionals in the financial markets also accept that there are structural failings in the system. Financial capitalism needs reform if it is to have popular legitimacy, but it needs the right kind of reform. Tighter regulation to constrain footloose capital is mainly a chimera.

Recent events have intensified popular suspicion of financial markets. Since the collapse of the bull market of the late 1990s, the most newsworthy financial stories have concerned corporate scandal and market abuse. The failures of Enron and WorldCom…

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