America's New Math: 1 Wall Street Hour = 21 Years of Hard Work For the Rest of Us
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The new Rich List is out -- yet another example of financial pornography. While nearly 15 million Americans still can't find jobs due to the 2008 Wall Street-created crash, the top hedge manager, David Tepper, earned $1,057,692 an HOUR in 2012 -- that's as much as the average American family makes in 21 years!
America's new math: 1 Wall Street hour = 21 years of hard work for the rest of us.
Together the top 10 hedge fund managers waltzed off with $10.1 billion in 2012, which is more than enough to hire 250,000 entry level teachers or 196,000 new registered nurses.
It's not just that these financial gurus are filthy rich. It's that they are the richest of the rich and we don't even know what they do. Overall, hedge fund managers make 50 to 100 times more than our top athletes, movie stars, CEOs, lawyers, writers, doctors and celebrities. Yet, their activities are treated like state secrets.
So what is a hedge fund? No, it has nothing to do with the wholesale garden supply business. Nor does all that money come from hedging against unforeseen negative economic events. Rather, hedge funds are investment vehicles for the super rich -- for "sophisticated" investors and institutions who have the resources to gamble for ultra-high returns.
Are you worth what you earn?
In a capitalist society your value is determined by what the market says you're worth. The market is not supposed to pay you billions unless you're producing enormous amounts of value for the economy. Bruce Springsteen makes a good living because people like his songs, buy his records and attend his concerts. We give him money, he gives us entertainment.
But not every market transaction is such an obvious fair exchange of value. Monopolies can jack up prices to make extra profits without increasing the value produced. It is also possible to lie, cheat and steal your way to riches without producing any economic value at all. And as we learned during the Wall Street crash, the creators of toxic assets produced an enormous amount of negative value for society even as the "market" paid them enormous sums.
So do hedge funds produce economic value or are they ripping us off?
Hedge fund managers don't sing, act, hit baseballs or make movies for a living. Actually, obtaining reliable information about what they do is really hard to come by. (It took nearly two years of research for How to Make a Million Dollars an Hour before I could chase down just a few of the answers.)
When you read media reports it always sounds like top hedge fund managers are just the very best at buying low and selling high. We're told that investors like Tepper were smart enough to load up on Apple, Inc in 2012 while everyone else was worried that the Euro crisis would crash the markets...and so on. Maybe that's true. But we have no way to really check out what a particular hedge fund does on a day to day basis. That's proprietary information. Instead we need to step back to examine the hedge fund business as a whole, and then ask two basic questions:
- How is it possible for hedge funds, most with fewer than 100 employees, to make more money than corporations with tens of thousands of employees?
- Is there any evidence to suggest that hedge funds succeed in large part because they have found ingenious ways to cheat? If so, how widespread is the cheating?
Hedge funds want to know who wins the race before it is run.