Neil, I’d presume the assumption here is that most sophisticated, read ‘accredited’, investors would have earned/ built/ maintained a high income/ net worth through a certain savvy. And, IMO prudent principal behaviours beget prudent firm stewardship beget relatively sound performance, would follow in hedge fund industry.

The issue of carried interest is a no brainer. The whole point of the preferential tax treatment of carried interest is to reward those whom risk their own capital. As the CEPR piece notes, it’s very common for PE managers to receive the lower tax rates associated with income from carried interest without risking very much capital at all. It shouldn’t be that hard for the IRS to do the due diligence and end the preferential tax treatment for PE managers that are not risking much capital.

The issue of PE funds loading companies with debt is equally suspect. As you mention, this puts acquired companies at a higher risk of going bankrupt. But another important point is that bankruptcy is often the point, from the perspective of the PE manager, of acquiring a company in the first place. It’s not uncommon for a PE fund to buy a company then force it into bankruptcy in a effort to rid the company of its retirement and pension liabilities. For example, shortly after Sun Capital purchased Friendly’s in 2008, Friendly’s declared bankruptcy and sought to use the bankruptcy proceedings to write off debt and to rid itself of its pension obligations to its 6,000 employees and retirees, thus transferring responsibility for these pensions to the Pension Benefit Guaranty Corporation (the tax payer). Cases like this are quite common in the PE industry and end up consuming a tremendous amount of resources on the litigation side, as regulators spend time figuring out whether the bankruptcy move was legal or not. So there’s a lot of economic value lost sorting these cases out.

As you note, though, whatever approach we take must be balanced. Yes, we need more revenue in the form of modestly higher taxes or a broader tax base, but we also need to restructure some of these generous defined benefit pension programs in the federal sector. A lot of these programs were structured off the assumption that the economy would grow 3 to 4 percent per year forever, when the reality that we need to come to grips with is that the economy will likely remain in this sluggish 1.5 to 2.5 percent growth pace for some time. I know it doesn’t sound like a whole lot in percentage point terms, but it makes a big revenue difference when compounded over many years.

But we’ll see what happens. I hope our leaders can eventually resolve their ideological differences and start making some compromises!

What do you see the eventual outcome of this to be?

Do you feel that the EU will disband completely or will it stratify into different classes?

I’m also interested in your opinion on how the Eurozone crisis affects the BRIC’s, especially Latin America and Brazil.

Thank You.