"How much fraud are you willing to tolerate for liquidity?"

That question was posed by Securities and Exchange Chairman, William Donaldson. Of course given his position, the answer was "zero".

Mr Donaldson was commenting on the lack of "ethical leadership" amongst US bosses. Particulartly in the line of fire were those who complain of "over-regulation". In particular the Sarbanes-Oxley Act.

Whilst corporate governance in general has improved, executives had to go beyond the letter of the law. The spirit of the law has to be seen to be implemented.

An example is the lack of progress in matching executive pay with performance.

It is not just individual businesses or bosses that are causing problems. The US Chamber of Commerce has launched an action to try and overturn the a new rule requiring mutual funds to have an individual Chairman.

Trying to make hedge funds register is another bone of contention. Hedge funds prompted the quote about fraud.

A gold rush of people entering the hedge fund industry had brought in a lot of people who had never managed funds. The SEC needs to "understand it better".

Critics cite the good that hedge funds do for liquidity. (A view held by Alan Greenspan.) Thus Mr Donaldson's question.

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