Treasury Secretary Tim Geithner announced a new regulatory model for the financial system that includes regulating hedge funds for the first time. In the past, hedge funds have largely escaped government oversight in the form of regulation and have been warded off legislative attempts to regulate them by leaning on powerful friends.

During the 2008 cycle, hedge fund campaign giving skyrocketed to $16.8 million--an increase of approximately 400%. Three of the top four recipients are predictable, Barack Obama (1st - $1,316,436), Hillary Clinton (2nd - $760,400), and John McCain (4th - $605,750), all major presidential candidates. The third largest recipient of hedge fund money was Banking Committee chair Chris Dodd, receiving $705,450 from the industry. Recently, Dodd has made overtures towards regulating hedge funds and other financial groups currently outside of the regulatory framework, calling the age of "don't ask, don't tell," in the financial world, over.

The only other significant lawmaker to have received large sums from the hedge fund industry is Sen. Chuck Schumer, the long-time protector of the financial services industry and supporter hedge fund deregulation. Schumer received $344,600 from hedge funds over the course of his career.

The debate over Geithner's new regulatory framework will be intense and it would be important to keep your eyes on the powerful Senate duo of Dodd and Schumer to see what they support and what they oppose. They have some powerful friends and Dodd might need their financial support in his tought reelection race next year.

The Politico reports how the hedge fund industry, fearing an upcoming fight with Congress will put a dent into their eye-popping profits, is seriously beefing up its Washington influence operation after years of maintaining a low-key presence.  Earlier this year, the Managed Funds Association, the industry's voice in Washington, lured U.S. Rep. Richard Baker to resign from Congress, where he served on the House Financial Services Committee, to lead their defense. The Congress has targeted the industry's tax free, off shore accounts, as well as raising taxes on "carried interest," the multimillion-dollar incomes hedge fund managers receive.

The association formed in 1991, but kept a low profile for most of its 17-years in Washington. The industry and its profits have grown "exponentially" as The Politico reports, with the association growing as well, going from 750 members five years ago to 1,600 today.  In the last couple of years the money the hedge fund industry spent on lobbying and campaign contributions to congressional candidates has skyrocketed, according the data from the Center for Responsive Politics. So far in the 2008 election cycle, the industry's total contributions have shot up over 128 percent over the last cycle, going from $4.95 million during the 2006 cycle to over $11.3 million this cycle.  When it comes to lobbying expenditures, the industry's increase has been just over 400 percent this cycle, ($8.4 million) over last ($1.6 million).

Hedge fund industry to Congress: "Do you hear me now?"