One of my favorite blogs is the ongoing discussion between University of Chicao economist and Nobel laureate Gary Becker and University of Chicago law school professor Richard Posner. The debates are always iluminating. In a recent post at Becker-Posner has Becker arguing in favor of the Fed intervening during a financial crisis and Posner dissenting. I’m sympathetic to Becker’s position.
Still, I liked this paragraph about hedge funds and taxes in the Posner posting.
The losses sustained by hedge funds in the bursting of the subprime bubble lend a note of irony to opponents of taxing them comparably to other investment companies. They argue that hedge funds play an essential role in bringing market values into phase with the underlying real economic values. It now seems that a number of hedge funds were caught up in a speculative frenzy, and that far from bringing about convergence between market and real values they enlarged the wedge between them.
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