"There is a place for high-risk speculation on the prices of stocks or securities, but these bets can no longer be allowed to threaten our entire financial system," said Sen. Jeff Merkley. "Taxpayers should never again be told that they have to save bankers from their bad bets."

This statement was in reference to the PROP Trading Act, recently introduced by five Democratic senators to help shelter the taxpayer from those “too big to fail banks with risky hedge fund subsidiaries.” Surely this will curb the systemic risk that is inherent with the current framework. The Shadow’s favorite part of the new rule, dubbed part of the Volcker legislation and introduced March 10th, includes barring banks’ proprietary trading desks from engaging in “high risk speculation” in financial markets. Good for that. At least they aren’t going after the “low risk speculation” just yet.

Perhaps this was to be expected. There has been a whole lot of meddling going in the last week that wafts of desperation and The Shadow is getting a little nervous in thinking how far this might actually go. Examples in the headlines abound: From The Wall Street Journal on March 3rd: “U.S. Probes Bearish Euro Bets.” From the same publication on March 8th: “Greece Seeks U.S. Support for Reining in Speculation.” Perhaps that desperation was only trumped by a certain bank’s own anguish, which was responsible for this headline from WSJ on March 10th: “Bank Padlocked Wrong House and Took Parrot.”

This makes the Shadow worried.

It is one thing to regulate the over-the-counter CDS markets to protect against bear raids on an entire country, quite a different thing when you start messing with people’s parrots. Whoa boy!

Not only are hedge funds taxed with figuring out when this party will end in the stock market, they will continue to be forced to defend themselves from over-reaching pesky politicians who have just a faint idea of what they are talking about only half the time. The Government doesn’t want you to trade CDS anymore, Mr. pesky Hedge Fund Manager (this surely will cure all of Greece’s woes). The Government doesn’t want banks owning hedge funds anymore, Mr. Bank CEO (this surely will prevent banks from underwriting worthless mortgage products and borrowers from buying more houses than they can afford). The Government DOES want your tax dollars though, Mr. Consumer, so please go out and buy a boat, or even better, your wife some new diamonds.

The politicians, given their knack for being ever present in the media, might convince a few unsuspecting Joe Six Pack’s that regulating the hedge funds this way will get said Joe Six Pack’s job back, but it won’t convince the Shadow.

Come on guys, you are better than this! Are you really going to waste the public’s time, money and resources by barking up this tree? Shame on you! Last I checked the prop trading desks and internal hedge funds are not to blame for this crisis. Most hedge funds actually got clobbered in 2008 and those funds that did succeed when all hell broke loose simply rode the tsunami of opportunity created by the host of other players (greedy borrowers, over-zealous mortgage brokers, incompetent rating agencies, financial products groups of certain insurance companies, and blind politicians).

Sure, the hedge fund space does have a few bad apples and The Shadow is not against regulating or weeding these guys out. It is, however, against regulating this industry unfairly in what will amount to slapping the “scapegoat” title upon us. And yes, stay away from my parrot!

The views expressed in this column do not necessarily reflect the views of HedgeFund.net.