Abstract
I will concentrate on financial innovation in the hedge fund industry, focusing on transactions in which foreign hedge funds lend money into the U.S., either directly to U.S. borrowers or by purchasing debt securities.
Policymakers must choose where the boundaries of what rises to the level of a U.S. trade or business should be drawn, or re-drawn, given the growth of complex debt transactions. Any particular line drawn will be controversial. In fact, inefficiencies can arise when economically similar transactions are taxed differently. The taxpayer whose transactions fall on the business side of the line will argue that the distinctions are arbitrary and their transactions are economically similar to those transactions that just barely fall on the passive investment side of the line. There will undoubtedly be room for disagreement about any line drawn because there are important and competing tax policy considerations that straddle any line. The goals of this Article are not to propose where these lines should be drawn. The goals of this Article are much more fundamental.
Recommended Citation
Julie A.D. Manasfi,
The Global Shadow Bank—Systemic Risk and Tax Policy Objectives: The Uncertain Case of Foreign Hedge Fund Lending to U.S. Borrowers and Transacting in U.S. Debt Securities,
11 Fla. Tax Rev.
(2011).
Available at: https://scholarship.law.ufl.edu/ftr/vol11/iss1/9