Tuesday, May 20, 2008

Hedge Fund Managers, Overpaid CEOs and Reaganomics: The True Axis of Evil.

As my grandmother always told me, every time I asked for more of something, after I had already gorged myself silly, "Your eyes are bigger than your stomach", we, the people's organs of vision, bulge out, the size of beach balls, either trying to fill an already overflowing pot or spinning our wheels, in hopes of "achieving" the means to do so.

The over abundance of wealth in the United States is sufficient to make sure everyone's basic necessities are more than met. Knowing this is true, then why do so many in this country go without essentials?

With the clear understanding that it is not the government's duty to provide a superior quality of life to its citizens, but only to go as far as to protect, secure and help to make strong the citizens, who for whatever reason, suffer from the lack of what an evolved society define as basic human rights, the answer is clear...

Wealth is never destroyed it is merely transferred. With the emergence of hedge fund managers and egregiously overpaid CEOs in the last thirty years, in an un-nuanced nutshell, our "wealth", the wealth we all work so hard to earn, has transferred in the pockets of those who need and deserve it least.

American decadence has blinded its citizens to the leeches among us, the leeches who are draining the essence and exhausting the resources of not only American society, but the world at large. Our government - commencing with the Reagan administration - laid out the red carpet for people willing and eager to "earn" their living gradually sucking the vitality and immunity from the veins of the middle class, the working class, the working poor and the misfortunate.

Legislation created and destroyed over the last thirty years explains why the distribution of wealth is skewed toward those, already so wealthy, they wipe their a$$e$ with "paper" spun from the finest silk, after scarfing down fungus they bought at the local market, for the price of a small car. Hedge fund mangers, in particular, known to make upwards of billions of dollars annually, these vampires are the product of a society, transformed by the late, great Ronald Reagan - "Betsy Ross" reincarnated - who diligently wove greed and lust for an overabundance of all things tangible, into the fabric of American society.

Hedge fund managers and egregiously overpaid CEOs symbolize this group of bottom feeders or vapid black holes of greed. They refuse to evolve past the smug self-satisfaction, at the expense of the most vulnerable, that characterizes a society still trying to figure out how to meet their physiological and security needs. They would rather gain a surplus of wealth at the expense of hard working Americans

Are all of America's wealthy people bottom feeding, vapid black holes? Of course not. Bill Gate's contribution transformed the world..his philanthropic efforts, an added bonus. Bill Gates is an example of the kind of wealth capitalism was designed to create, as his hard work and superior talents served to enhance, rather than crush and destroy...that is, unless you dare to compete with him.

No, Bill Gates is not perfect...far from it. However, compared to those who contribute absolutely nothing, skimming the cream off the top of "regular" folk's hard earned savings, making more money than a couple of small nations combined, Bill Gates comes out a hero.

According to Maslow's hierarchy of needs, once we have satisfied our basic needs it's time to evolve to the next level. It's time we, the people put an end to gauging success by the attainment of wealth, position, honors, or the like, and instead start to measure our worth by what we contribute to our community, country and/or the world. We need to work on using the power we have to say "no" to ourselves and rather than spend that $10,000 burning a whole in our pocket, on a plate of fungus at lunchtime, take that money and feed more than $10,000 starving people who exist on mud cookies.

The leaders we choose reflect our values, morals and sense of who we are. If we are not able to apply the brakes on our own ravenous appetites for money, things, power and control, how can we expect our leaders to hit the breaks and evolve our country to another level? It won't happen.


Pete,  02:13  

Very true. Enjoyed reading your blog.

jw,  08:46  


Bill Gates was similarly castigated when he "only" had $3B, as being greedy and selfish. However, if he had given it away then, he would not have had the $30B to give away now (with more than $3B left over for his family and future donations).

Wealth can certainly be destroyed, and is repeatedly destroyed by governments through waste and inflation.

Almost everyone seems to have an opinion on what to do with other people's wealth, very few have an ability to create wealth by adding value to a society.

It has ever been thus.

Leute 10:45  


It's not the amount of money involved as much as how that money was acquired. Bill Gates most certainly did contribute a great deal not only to this nation, but the world at large.

Is Bill Gates a greedy man? Power hungry? A threat to capitalism? Perhaps, however, I believe he, among many, served to transform society and the world at large for the better.

Real wealth is not destroyed. One nation's downfall is another nation's windfall, that is, assuming the absence of catastrophic events or nuclear holocaust.

John Bogle sums it up in his book, "The battle for the soul of capitalism", by explaining how corporate trustees and mutual fund managers are acting too much in their own interests and not in the interest of the underlying pension beneficiaries and the fund share-holders. W have an agency society who does not honor the interest of its principles.

Fund managers have a clear legal responsibility solely, first, last and foremost, to operate in the interest of the shareholders and investors.

Today, managers have an interest in getting the funds as large as they can to take home the management fees to the largest possible extent.

As Warren Buffet says, “The fat wallet is the enemy of superior returns”.

In 1980 the typical CEO made 42 times what the average worker made and now in 2007 the typical CEO makes 600 times what the average worker makes.

"Our whole investment system, once focused on corporate value has gotten focused on corporate price. We’re a nation of investment traders, speculators rather than a nation of long-term investors. The only way to be successful is to capitalize on the wisdom of long-term investing and instead we’re all engaged in the measurable folly of short-term speculation. It’s the focus on the precise price of a stock, an illusion rather than the eternal reality which is the intrinsic value of the corporation…how much cash it will generate over the foreseeable future or lifetime." -- John Bogle

Thank you. I appreciate your comment very much.

hedge fund manager in my dreams,  11:20  

You forgot to mention that hedge fund managers earn astronomical fees for managing their funds, and are taxed at capital gains rates, 15% thanks to George Bush...and not at the income rate the rest of us are charged. (about 35%).

jw,  11:28  

It does not matter how wealth is acquired. Bill Gates has been deemed a greedy monopolist by many and the HF managers who made $B's last year enabled many public and union pension funds to achieve their goals of funding a solid retirement for their members.

Also, wealth can be destroyed. See North Korea, Zimbabwe, and Cambodia among many other examples. These are microcosisms of a global effect if redistributionist policies proliferate.

As for Bogle, he is fairly well off, although anyone who bought his book in 2000 is still waiting to make a return on their investment... He did spark an industry that gives everyone the choice to invest in very low cost index funds. Since people also choose to invest with higher fee managers, they must perceive a

jw,  11:33  

value from those managers.

And finally, as is true of the money managers above, any CEO that can do the same job for less than another CEO will get hired. Boards must perceive value to pay CEO's that much. The workload, media attention to professional and personal life, and especially SarBox has made the cost and risk of being a CEO much greater than it was in 1980. The skill set and risk of the lowest paid employee has not increased anywhere to the same degree.

Always look at the production side of the equation, not just the cost side.

Leute 19:43  

While what you said may be true in theory, regarding the skill set of CEOs, and that large profits are supposed to reward those who take "high risks", it is not true that hedge fund managers and CEOs are the ones with the most to lose.
They have very little to lose in comparison with people at the bottom who work just as hard in many cases, if not harder and have everything to lose.

Meanwhile, CEOs are falling like flies all around us either thoroughly corrupted by too much power and money or lack the skills necessary to lead a large organization.

Business leaders, lured by huge hedge fund returns failing to comprehend the risk because Hedged fund managers downplay it, invest regular people's pension money and retirement funds without the knowledge or consent of the common investor.

The waters are so muddied no one knows whats going on. A 2 and 20 fee structure where the manager takes 2% of the fund from the get go and then takes 20% of the profit is outrageous.

The average hedge fund manager takes in $570 million per year. For what? Neglecting long-term value for short-term rewards? Inflating financial bubbles to the point the burst leaves everyone but them suffering the consequences?

Having said all that, I admit I am biased and I tarred and feathered the CEOs and hedge fund managers with the same brush not fully understanding their world.

Actually, at first, my point was to apply the same lack of nuance Bush applies to every issue he encounters...

I really like reading what George Soros has to say, so they can't be all bad. Thanks again. I always appreciate hearing from the other side.

Anonymous,  00:26  

The hedge fund managers and the ones responsible for turning our economy upside down get bailed out and the little guy pays the ultimate price.

That's life.

jw,  07:09  


The average HF manager does not make $570M per year. There are 10,000 hedge funds. If the average were $570M, then combined they would make $5.7 Trillion! (That is 1/3 of the entire output of the US and twice as much as the assets managed by all HF's worldwide.) The average HF does not even manage $570M. Innumeracy is rampant in the US...

As far as Soros is concerned, he has made a huge amount of money, and as a non-US citizen, has spent hundreds of millions trying to influence the elections of the US. But as long as his politics are in agreement with yours, then how he made his money or his carefullly exploiting every loophole in US election laws is OK by you.


Leute 17:43  

I apologize. I meant to say the 25 highest paid hedge fund managers had an average income of $570 million.

I admit I am no expert on Soros and I'm sure he's the master of exploitation, otherwise he would not have excelled as he did in the hedge fund industry.

Soros is a naturalized American citizen and I respect what he has to say because of his experience, not his politics. However, I also realize his politics influence what he has to say and it would not surprise me in the least to find out he has a lot in common with our current administration as far as hidden agendas go.

jw,  07:32  

I apologize, Soros is a US citizen.

As one, he still circumvents the spirit of US campaign laws, but he does do it legally (or at least with plausable deniability...). It looks like McCain-Feingold did not get money out of politics after all(IMHO, it was never intended to, but only to protect incumbents, but that is another thread...)

As an exclusive supporter of Democrats, and their stated tax increases, he also has almost all of his assets in his hedge fund's offshore vehicle, so he enjoys that much lower tax bracket that is mentioned above.

This is the same behavior that Howard Metzenbaum followed. After a career in public service where he voted for every and any tax hike he ever saw, he moved to Florida shortly before his death so that he could avoid state estate taxes on his fortune, saving his family millions.

jw,  07:44  

As far as CEO pay goes, please include the Hollywood elite in the calculations. At $250M+/yr, Oprah makes 10,000 times more than her least paid employee (est $25K).

To a lesser degree, this also holds for Sarandon, Penn, Baldwin, etc, etc. Given a good $10M per film payout, and a low paid catering server or asst gaffer at $10K, that is a 1,000 to 1 ratio.

CEO's were legislatively targeted at a maximum of $1M salaries, after which the compensation was tied to performance. Movie stars and athletes were specifically exempted from this, although many guarantees are much higher than $1M.

(BTW, corporate compensation committees easily sidestepped the law by making very obtainable goals for the CEO's, which directly led to some of the "worst" compensation increases. More unintended consequences....)

Leute 23:55  

I'm sure Soros uses all the advantages he "disagrees" with...just as Warren Buffet does. What makes them stand out is their willingness to illuminate how our system favors its wealthiest citizens.

..."circumvents the spirit of US campaign laws, but he does do it legally"...

This is true of most who operate in unregulated areas of the banking and investment. This lack of regulation combined with creating, amending or destroying legislation favoring the wealthiest legalizes corruption IMHO.

And Oprah, Penn, Baldwin etc. are most definitely included. They fall into the same category as Soros, Buffet etc...I'm sure they also use all the advantages made available.

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