Friday, April 19, 2013

Hedge Fund Approach to Beach Erosion


Hedge Fund Approach to Beach Erosion

On certain streets in Westhampton Dunes the ocean and hedge fund managers surround one another.  Apparently, hedge fund managers can’t get enough of each other.  During the week they trade back and forth.  And on the weekend, they flock to the Hamptons to play together.  There’s just one small problem.  The Atlantic Ocean would like to claim their $50 million homes and five-acre parcels. The answer for hedge fund managers is straightforward.  In order to protect their investment, they’ve hired contractors to embed steel plates or huge boulders along their ocean front property to hold back the sea.[1]  Never mind that the beach is public land or that their barrier will cause erosion elsewhere along the coast.  With a team of lawyers and engineers and piles of sand and money, their homes, tennis courts, and pools will be safe.

The Case For a Fund (1999)

It seems the hedge fund mentality follows these guys from Manhattan to the tip of Long Island.  While the public interest might dictate that these folks should forego installing barriers because they compromise the overall health of the shoreline, hedge fund managers will do what it takes to protect them.  Never mind the fact that they knew in the first instance that they were putting homes in harm’s way. 

This is exactly how they act on Wall Street.  As long as a lawyer is willing to say that something is legal, hedge fund managers will engineer a strategy, even if it threatens the stability of the financial system.  So long as their risks are covered, it’s okay.  It’s no small wonder that Dodd-Frank and its implementing regulations have turned into tens of thousands of pages.  Congress and the regulators are dealing with people who don’t believe in broad principles.  Hedge fund managers will scour the text of any set of regulations looking for a loophole, and if it’s legal, they’ll do it.  So the regulations have to grow and multiply to cover every possible situation that a hedge fund manager might decide to exploit.

Out in the Hamptons, it appears that most of berm builders consulted lawyers and even invited in local inspectors.   They adopted their workday philosophy: so long as their risks are covered, it’s okay.  There’s one small problem with this philosophy.  Hedge fund managers have more than enough money to hold off Congress and the regulators indefinitely.  However, out on eastern Long Island, nature will triumph over money and influence.


[1] http://www.nytimes.com/2013/04/18/nyregion/southampton-homeowners-build-barricades-to-hold-back-sea.html?pagewanted=1&_r=0&hp

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