If one relied just on what politicians say and not what they do, one might reasonably conclude that hedge funds - blamed by our President and various politicians - were the cause of our economic meltdown.

We are reading headlines that our Congressmen, led by Barney Frank, are on a crusade to reign them in so that such turmoil will not recur. Frank certainly has his reasons for distracting Americans from his own prominent role in causing the catastrophe through his support for the Community Reinvestment Act, and his empowering of Fannie Mae and Freddie Mac to lower their standards when those two companies purchased high-risk mortgages.

Over in the Senate, Chris Dodd (after Barack Obama, the number one recipient of donations from hedge funds in the last election cycle), has the same motivation to demonize hedge funds and to promise punishment of them. The reality, of course, is different from the charade. In fact, hedge funds have been gaining clout in Washington and are working, with a degree of success, to influence the drafting of the legislation to minimize their own risks while maximizing their profits. The legislation will be all bark and little bite. Michael Kranish of the Boston Globe reports:
 

As they make their case to Congress, hedge fund representatives have dramatically increased their spending on lobbying, going from less than $1 million in 2006 to nearly $8 million in 2008, according to the Center for Responsive Politics. They also recently began contributing much more heavily to politicians, especially as Democrats took power in the White House and Capitol Hill. They nearly quadrupled their contributions from 2006 to 2008, to $16.8 million, the center said.

In the current 2010 election cycle, hedge fund officials have continued their historic tilt toward the Democrats, who received 71 percent of the $1.3 million in industry contributions. Many hedge fund managers are Democrats, including George Soros, who runs Soros Fund Management and has given millions of dollars to Democratic causes, including the liberal group MoveOn.org.