It is sad to reflect that if slavery were by some hideous quirk made legal again, undoubtedly a certain number of individuals in the U.S. would be willing to sell themselves into it. This morning, the Senate Banking Committee held a hearing on regulating what in the world of finance is known as hedge funds.

To start with, there is more than one definition of hedge funds. Broadly, however, they are gigantically capitalized entities for high-risk investment. They are in some ways the riskiest form of investment, and they don’t deal in small amounts of money. And as Sen. Richard Shelby, head of the Banking Committee, and Christopher Cox, head of the SEC, both stated, hedge fund growth in this country (which, with Great Britain, is home to most hedge funds) has been enormous and startling over the past few years. Cox testified that the amount of capital under management in hedge funds has grown to approximately $1.2 TRILLION. Cox also stated that hedge funds account for “about 30% of all U.S. equity trading volume.”

Shelby pointed out that “wealthy investors and large institutions” attracted by hedge funds include “pension funds and universities.” There is room for concern here, especially since a U.S. Appeals Court recently struck down some federal attempts to bring hedge funds somewhat more under SEC regulation.

Sen. Paul Sarbanes (D-Maryland), excellent and lucid as usual, raised three concerns: 1) whether the standards for an “accredited investor” (currently anyone with over a million, including your house) are too low; 2) potential conflicts of interest in managers of hedge funds and mutual funds; and 3) the impact on financial markets of hedge fund strategies on a large scale, including short-selling.

Sarbanes also brought up a concern voiced by the AFL-CIO, about worker pension funds. There seems to be a move currently to allow more pension funds in hedge funds, a scary prospect for millions of workers counting on pensions to support them in retirement.

Sarbanes also asked about what might happen in a market shock — a “run on the bank,” in which large numbers of hedge fund investors withdrew from their hedge fund at the same time. Basically, to the question, “what would you do?” the answer was — something along the lines of, we’re looking at that.

Three witnesses appeared before the Committee — the head of the SEC; the head of the U.S. Commodity Futures Trading Commission, Reuben Jeffery III; and the head of — No, not the head of Treasury but an undersecretary in Treasury named Randal K. Quarles. Quarles’ answers were not reassuring.

Nobody mentioned that one sizeable hedge fund is operated by the president’s youngest brother, Marvin P. Bush. But then, nobody needed to mention it.

Quarles, BTW, is one of the new breed of Bush appointees, much like an undersecretary from State, John Hillen, whom I heard “testify” to Congress last week, on the administration’s support for a new sale of F-16s to Pakistan. Yes, that’s right, little friends. Just at the juncture when the Pakistanis are bringing out new developments along the nuclear line, the White House wants them to get more F-16s. Hillen and Quarles struck this viewer much as less senior, white male versions of Condoleezza Rice, except perhaps a tad less philosophical and independent — future First Family employees, basically.

Back to the top: one question is why the federal government, or some of the most august names on Wall Street, should be aggrandizing hedge funds in the first place. Just because some people want high-risk opportunities, does that mean the rest of us have to provide them — and pay to regulate them, and provide the courts in which they try to avoid regulation, and pay Congress to try to control them?

You’d think that people so eager for a good risk would be particularly able to stomach NOT getting what they want. Shd be a real shot in the arm, one would think.

I read years ago that a “risk” is one thing; a “gamble” another. But it seems to be BushCo’s broad strategy to maximize gambling rather than genuine risk. Perhaps that’s just another way of saying that they tend to privatize gain (for the few) while socializing penalty/payment (for the overwhelming majority).