The European Union’s draft directive on alternative investment fund managers and the US bill on private fund advisers should be welcomed as first steps to address the unregulated financialisation of our economies. But regulation must go further, and be followed by taxation to eliminate socially undesirable hedge fund and private equity activities.

Governments must act against the unregulated financialisation that has brought the worst recession for 75 years. Economic punditry is now discredited, but the American Hyman Minsky did foresee how excessive leverage and risk-taking would lead to paralysis of credit. He warned that financial innovations would subvert attempts to manage economies, and make the system vulnerable to more frequent and severe crises. Corrective action rightly focuses on hedge funds – they are both central to financialisation and basically socially undesirable.