The Atlantic has a very interesting if inappropriately titled article, Big Money vs. Bernanke: Who’s Right About the Economy? The value of the article is not in addressing who is right and who is wrong, which it does not address. The value is in the following explanation:
For a few months now, quite a few hedge fund managers have complained loudly about the Fed. Their protests reflect the difficulties of investing in manipulated markets which, at times, can be quite “irrational” – at least according to their analytical, historical and mental models. They hate interacting in markets where central banks act both as competitors (with better visibility and information) and referees (seemingly happy to change the rules at a whim).
So this is why the hedge funds reacted so strongly about Bernanke’s mild announcement that the Fed may gently moderate its current policies some time in the unforeseeable future.
I don’t think we want large hedge funds that are too large to fail to be playing games with markets that are supposed to be used as aids to the real economy. Perhaps the U.S. government needs to be in some international discussions on how to regulate the hedge funds just as it did recently with international treaties on banks.
I think it is commendable that the Fed can step in and slap these hedge funds around until they are so punch drunk that they cannot function.