Financial Overhaul Likely to Fail: Hedge Fund Honcho

Market manipulators are bound to find a way around sweeping reforms proposed for the financial services system, hedge fund manager James Chanos told CNBC.

Chanos on Regulation Revamp

The rules, announced by President Obama on Wednesday, were devised by those not as shrewd as the people who caused the damage to the system in the first place, Chanos, president and founder of Kynikos Associates, said in a live interview.

"I'm worried we're just directing yet another Maginot Line that the forces of financial innovation will get around next time," he said, referring to the allied line of defense drawn against Germany between the two world wars.

Financial regulation failed previously because it was formulated by government officials not in touch with the internal machinations of the marketplace, Chanos said.

"We still have by and large academics and lawyers who are trying to regulate an industry in which they've never run a fund, they've never bought and sold stocks professionally, they've never cold-called a client," he said. "It's a little tough because the guys who are the bad guys are one step ahead of the cops on the beat every single time."

Chanos is famed for his skill at shorting the market, and believes there are several sectors that are good targets to bet against. Foremost among them is health care, which also is being targeted for a government overhaul.

"Profit margins are inexorably going down in the health care industry," he said. "I think it's a no-brainer."