Hedge banks

The NYT has an article on hedge funds that are moving in to fill the lending role left open by deleveraging banks. The article is interesting on a number of levels.

First, it makes you realized how totally commoditized hedge funds have become. Admittedly, there are plenty of distressed opportunities that are going to be out there in the next couple of years, but once these guys start acting like a bank, they're going to become ... well ... a bank. Expecting 20% or even 15% returns from these guys seems unlikely over the long-term.

Second, it speaks directly to the questions of regulation. The Fed will regulate some investment banks, and change some regulation on regular banks, but these guys simply are not regulated and they never will be. There will always be a shadow banking system, and the government will never keep up with it, because it is the government that actually creates the conditions of its existence.

Third, the cost of capital in corporate America just went up. This may actually be a good thing, if, like me, you think that the Fed shouldn't have let rates get this low to begin with, and especially not primarily to bail out insolvent lender idiots.