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From Kirsten Bischoff, Opalesque New York:

Almost three years after the start of the financial crisis, the major regulation to address systemic risk in Europe (Basel III) and in the US (Dodd–Frank Wall Street Reform and Consumer Protection Act) has finally been passed. It will take the next few years to implement, and while that framework is being built, financial firms that will face the brunt of the regulation have teams working feverishly to find loopholes around the restrictions that will eventually be put into place. Additionally, what “fixes” do survive will not address the many other sources of systemic risk (ie, sovereign debt, US mortgage debt, US state and municipal level debt, etc) that have shaken the global financial markets in the time since the start of the financial crisis.

In short, “[The new US and European regulation] are the best ways to address the systemic risk of 2008; but, they are not the best ways to address the systemic risk looming ahead of us in 2011 or 2012,” says Ari Bergmann, Managing Principal at New York-based Penso Advisors.

By and large, the actions of hedge funds are reflective of concerns over the systemic risk that continues to threaten the markets. However, hedging against systemic risk by and large tends to be hedging on the risks that everyone is most worried about, which in the end are typically the one that is least likely to happen, says Bergmann. “Risks that......................

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