The UK media on Sunday were agog with the news that the Conservative Party, which is widely expected to regain power at the next general election, has taken large donations from hedge fund managers. David Cameron, the Tory leader, has reportedly accepted almost GBP2m from managers who supposedly have made vast sums of money from betting against some of Britain's crisis-hit banks.

In particular, hedge funds have been widely blamed for sparking the slide in the share prices of banks such as Halifax Bank of Scotland, which was forced into an emergency rescue by Lloyds TSB, and Bradford & Bingley, which was nationalised yesterday. The headlines were lurid: "Cameron hit by new hedge fund row" and "Tories' £3m booty from city sharks".Ó

But let's set the record straight. Accepting donations? That is completely legal. In fact, according to the Center for Responsive Politics, which tracks campaign contributions, US-presidential nominee Barack Obama has received money from many of the best-paid hedge fund managers, including Blue Ridge Capital Founder John Griffin, Stephen Mandel of Lone Pine Capital and the legendary George Soros.

And hedge funds making money through short-selling? Again, legal - at least it was before the short selling of financial stocks was (temporarily) banned by the Financial Services Authority 10 days ago.

Finally, hedge fund money influencing political decisions and party policy? Hardly, according to Cameron, who says: "They [hedge funds and bankers] don't have any influence on my policy at all.'
 
The bottom line is that party donations from financial institutions are a global phenomenon and are completely legal. And if they weren't, there would be something wrong with our democracy.


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