Hedge funds worried Obama moves could backfire

By Joseph A. Giannone - Analysis

NEW YORK (Reuters) - U.S. government efforts to revive a sluggish economy have cheered markets since March, but some of the most successful investors around worry these moves may only make the bad times linger.

Several hedge fund managers at an investment conference this week warned that a number of policy moves by the Obama administration, from its Chrysler intervention to Treasury's myriad bank bailouts, will only extend the recession.

It would be better, they said, if the government let markets move unimpeded, causing pain now but clearing a path for sustainable recovery.

"The basic strategy appears to be to try to bring us back to 2006 by propping up asset prices and reflating the popped credit bubble, subsidizing bank creditors and shareholders, and delaying needed bank recapitalizations while hoping for an economic recovery," Greenlight Capital's David Einhorn said at the annual Ira Sohn Investment Research Conference.

Wall Street has been pilloried during the past year for making big gains as markets crumbled, and blamed for driving companies into the ground and accused of standing in the way of the recovery. U.S. President Barack Obama last month chastised several hedge funds as "speculators" when they declined to support his Chrysler restructuring plan.

The scolding prompted these fund managers to surrender, but the episode made investors less certain about the security of their interests.

"It is a very bad idea for governments to create arbitrary and unfair outcomes, or outcomes resulting from the passions and whims of the government rather than from the law, just because they have the power to do so," said Paul Singer of hedge fund Elliott Management.

MidAmerican Energy Chairman David Sokol, who runs a utility that also owns the second-largest U.S. real estate brokerage, said short-term fixes could came back to haunt the U.S. economy.