Thank you, Mr. Chairman.

Thank you.

We are in the midst of the worst financial crisis since the

1930s. The salient feature of the crisis is that it was not caused...

Oh. Okay. Well, good morning, Chairman --

No, I think it's on.

Is it on? Yeah.

Good morning, again, Chairman Waxman and Ranking

Member Davis, members of the committee.

I'm Jim Simons. I'm chairman of Renaissance Technologies....

Chairman Waxman, Ranking Member Davis and members

of the committee, thank you for inviting me to appear today.

Paulson & Co. is an investment...

All of the investment funds we manage are open only

to "qualified purchasers," those with the minimum 5 million (dollars)

in investable...

Thank you, Chairman Waxman, Ranking Member Davis

and other members of the committee.

My name is Philip Falcone. I am the senior managing...

Mr. Chairman, Congressman Davis and distinguished

members of the committee, my name is Kenneth Griffin, and I am the

founder and CEO of...

Yes, I think that some hedge funds do pose a systemic

risk. And I think particularly leveraged capital was built on a false

conception.

I...

Pardon?

Yes, it does.

Yeah, well, certainly the --

Yeah, it is.

Certainly the possibility exists that an individual hedge fund or

hedge funds in aggregate could cause -- be a cause of systemic...

I think the risk --

Yes.

I think the systemic risk in the financial system

-- and that includes hedge funds as well as banks and other financial

institutions --...

I think that --

Yes, yes. I think that the equity requirements of

financial institutions need to be raised, and the margin requirements,

the amount of capital...

I may add just one point, is that in all the

trillions of government support globally to try and stem this

financial disaster, not one dollar...

Yes. I think that any institution that has a pool

of capital at its availability and uses reckless leverages indeed

poses a systemic --...

Mr. Chairman, as you referred to Long-Term

Capital's consortium bailout in 1998, it is important to remember it

was a private-market solution...

I do not --

No.

It is not my belief that we need greater government

regulation of hedge funds with respect to the systemic risk they

create.

And to be very direct, we've gone through a

financial tsunami in the last few weeks. And if we look at where the

failure stress points have...

Yeah, I don't have much to add. I've already said,

I think, my -- reporting up to the regulators is a good idea, more so

than is now reported....

-- reported to The New York Times.

I've been in favor of TARP, to a certain extent,

considering that it could be a safety net for isolated incidents. I

don't believe however...

Okay. Well, it was generally agreed that the

original goal of TARP to buy some of this paper was perhaps not the

best idea and more leverage...

I'm on record in -- of being very critical of the

original TARP proposal. And I'd like to go on record saying that

while it is a great improvement...

What's your question? I didn't fully understand your

question. Was it how it affected our --

I fully anticipated the worst financial crisis since

the 1930s. But frankly, what has happened in the last eight weeks

exceeded my expectations....

I think it's very important that the manager aligns

themselves with the investors. And in my situation, I'm the largest

investor of both...

Well, we certainly appreciate your --

Yeah. We certainly appreciate your concern for

fairness in the tax code. But I will -- (audio break) -- our tax --

our tax situation is...

The way -- the way partnership accounting works, if

you -- if the partnership owns an asset for more than a year, that

asset is taxed at...

Yes, I do. I think that the important thing to

realize that hedge funds, quite frankly, are not and probably should

not be treated any differently...

I agree to it. I have no problem with it.

Yeah, I said, the carried interest portion

represented by other people's money, if that were raised to higher

levels, that would be okay...

Yes, I did.

Yeah, I would. I don't think it is a loophole.

The carried interest merely passes through the nature of the income to

the partners. If it's...

I think tax equity is incredibly important. And

most of the income if not all of the income that I generate is subject

to either ordinary...

That's correct, sir.

And management fees are taxed as ordinary income,

sir.

The management fees are generally taxed as ordinary

income for most firms.

The 1 or 2 percent.

That is correct.

Well, let's go back to the story of the chef. The

chef in his salary, every year, is taxes as ordinary income. But if

the restaurant has...

If I make an investment, that creates long-term

capital gains. So I invest in a biotechnology company. Would the

stock appreciate?

That's correct.

That is correct.

That is correct.

Well, just to be very clear, all of my income, or

virtually all, is taxed at the highest marginal rates.

All right. So I speak to this from that conceptual

I'm sorry. I didn't follow the question properly.

I'm sorry.

I'm not sure that I would agree with Mr. Paulson on

that.

I think that if you have a capital increase in the

banks, then I think that as long as the money is put up by the

shareholders, there should...

No -- well, when it's taxpayers' money -- no, there I

agree.

Yes.

Yeah, generally speaking, I do, although I will make

the point that when this first round of money was put into these

banks, some of them...

Well --

I agree. I think that to the extent that capital

is infused into some of these companies, it should be more along the

lines of market rates.

I believe that market rates for many of these

companies would be extremely high, and if one of our goals is to

reduce the cost of consumer...

Yeah. I'm a little bit at a loss, because it's not a

subject that I have really given a lot of thought to.

I haven't thought about it a great deal, but I've --

generally speaking, I'm more of a fan of profit-sharing for CEOs than

I am of stock...

I'm inclined to agree with Mr. Paulson and Mr.

Simons, that it is important to participate from a compensation

perspective as it relates...

I will concur with the other panelists.

I think that would be a terrible idea.

And part of the reason is that we need executives

in America to take risks. Whether it's to put the money down on the

line for R&D in --...

Well, let me first say, I hope this is not Paulson

versus Paulson, or that I'm accusing Paulson of botching --

(Cross talk.)

Absolutely I'd be glad to do that, Mr. Chairman.

I in no way want to be critical of Mr. Paulson.

He's done a tremendous amount for our country. He's willing to change

his position when...

Congressman Cooper, that's a very good question.

Investors never have to invest in a hedge fund. If they don't

get --

If they don't get the proper transparency --

Well, we for one give a lot of transparency to our

investors. And while we don't disclose them publicly, we do disclose

a great deal about...

Yeah.

I think that hedge funds, several hedge funds have claimed to

follow a market-neutral strategy, exactly because -- (audio break) --

institution...

Well, you see --

Basically, what the prevailing paradigm has neglected

is the uncertainty that is connected with this reflexive connection.

We have become...

Well, you see, I think volatility is an indication of

uncertainty. And the fact that you've -- normal volatility is 30, and

it shot up to...

Well, I think that regulators have to understand that

there is -- there is this uncertainty in markets. And that's why the

risk-management...

Yes.

I would agree as well. I'm not so sure if it

should be the SEC or the Federal Reserve or a new regulatory agency,

but I think it's a very...