Insight: A harmful hedge-fund fixation

Almost exactly two years ago, at the craziest peak of the credit bubble, Western leaders gathered in a conference room at the World Bank in Washington to discuss what they should do about the financial world.

These days it is clear what those grandees ought to have discussed – notably the wild excesses afoot in subprime lending, structured credit, monoline insurance, credit ratings and bank leverage.

In practice, though, those issues were barely discussed. Instead, the hot topic for debate in that April 2007 meeting (as I describe in a book published this month) was how to clamp down on hedge funds – a topic dear to German leaders, who were chairing the G7 at that point.