Top US regulators are zeroing in on the dangers posed by highly leveraged hedge fund trades—and mulling options to rein in risks to the broader financial system. Officials are especially concerned about the growth of one strategy known as the basis trade, which involves the use of leverage to profit from the price gap between Treasury futures and the underlying cash market. Although hedge funds are subject to less direct government oversight, they rely on highly regulated large banks to finance many of their trades. As a result, under consideration by regulators are options ranging from pushing banks to gather more data on exposures, to pressing them to ramp up haircuts on some secured borrowing. Securities and Exchange Commission Chair Gary Gensler said the “generous” funding prime brokerages provide to some hedge funds is the biggest source of risk out there. His subsequent warning may strike some as familiar, given recent (and not-so-recent) Wall Street history: “If a problem happens,” he said, “it’s going to be the public that bears the risk.”
US President Joe Biden has gone out of his way to show the world that he supports Israel in its war against Hamas. But he also made sure to come away from his trip to Tel Aviv this week with a plan to get aid into Gaza, where the United Nations and others warn of a humanitarian catastrophe. Now, it seems Biden is also exerting influence on the way in which Israel will conduct its promised ground offensive. The US is shaping the way the assault will be conducted, particularly to limit casualties among the 2 million civilians who live in Gaza.
