Close Look at Hedge Funds - Article Example

Instead, they borrow money from the broker who is carrying the stock, promising to pay back the price of the stock at a certain time which they expect to be lower than the price for which they originally bought the stock. In this way they make money. The SEC put out a warning that they will be looking closing at hedge funds that make over 3%. Is it right for the SEC to do this? There are a bunch of moral questions involved in this issue. One could place moral questions on the role of hedge funds. Is it right for hedge funds to purchase stocks expecting to make a profit because they know the stock's value is overly priced?

The SEC should not put out such warnings because they will be capping the profit initiative, the ability of people to make a profit whenever they see it. This sounds more like a right under our free market system. Another argument is that it is not possible to truly regulate the market without being unfair to those who have made an earnest buck in the market. Some investors may be lucky, or some hedge fund operators may have done good due diligence research and they should be awarded whatever profit that comes their way.

The SEC should put out such warnings. Hedge funds have been known to create market changes based on pure speculation, resulting in market busts where a lot of people lose their money. An application of the First Principle of Justice from John Rawls is based on an original principle in which everyone at first has an equal footing to determine the laws of their society. Whatever laws are determined should be such that the least advantaged should not take advantage of them. As talents are eventually applied to members of society and some do better than others, it should not be such that gains are made from hoodwinking others to their disadvantage. As long as this disadvantage does not entail the ones who do not gain are losing money. To some extent, this would mean a skilled hedge fund operator could make a profit as long as it did not drain the resources of others. This view does twist Rawls's concept to a certain extent, but it seeks to make sure the profit motive scheme, which everyone has, is not unduly burdened.