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Hedge Funds Crisis Spurs Congressional Hearings: `Plunge Protection Committee' in Rare Testimony

July 3, 2007 (EIRNS)—In light of a growing credit markets crisis centered on hedge fund failures and the mortgage-based securities and derivatives they trade, two Congressional committees reportedly have scheduled new hearings on hedge funds in July.

In a rare event, the chiefs or deputies of the Treasury, Federal Reserve, Securities and Exchange Commission, and Commodity Futures Trading Commission will testify to the House Financial Services Committee on July 11. Collectively, these are the famous and usually secretive President's Working Group on Financial Markets, colloquially known as the "Plunge Protection Committee" which monitors for market crises and plans liquidity interventions or bailouts to head them off.

Congressional sources say the Committee will be asking hard questions of the market supremos, in light of the multiple hedge funds which are leaning or falling like dominoes as the U.S. mortgage-bubble meltdown hits international credit markets. The failures of two large Bear Stearns investment bank-operated hedge funds has exposed an international "shredding" of inflated securities values in progress. It was at a hearing of the same Financial Services Committee on June 20, that SEC Chairman Christopher Cox revealed that the SEC is investigating the Bear Stearns failures, and a number of other cases he did not name, for potential shocks to the entire financial system. But aside from that one question, the four-hour hearing was largely oblivious to the crisis spreading from mortgage securities to many credit markets.

Other sources report that the House Ways and Means Committee will also hold a hearing examining the hedge fund problem in July, though a date is not yet set.

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