Robert Reich: Why You Should Work for a Hedge Fund

[flpoljunkie]

Why You Should Work for a Hedge Fund

Just because I lost a big chunk of my total retirement savings over the last year doesn't mean I should be upset that 25 hedge-fund managers reaped a total of $11.6 billion during the same interval, according to Institutional Investor's Alpha Magazine -- including $2.5 billion for James Simons of Renaissance Technologies and $2 billion for John Paulson. (To be included on the list, you had to take home more than $75 million.)

I do admit to being irked that some of what these guys earn is taxed at a 15 percent rate because the earnings are treated as capital gains, while I'm just about to be walloped by the Internal Revenue Service come April 15.

But what causes me severe heartburn is that these are exactly the sort of investors Tim Geithner is trying to lure in to buy troubled assets from banks, with an extraordinary offer financed by you and me and other taxpayers: If it turns out the troubled assets are worth more than these guys pay for them, they could make a fortune. If if it turns out the assets are worth less, these guys won't lose a thing because we taxpayers will bail them out. Plus, they get to pick only the highest-rated of the big banks' bad assets and can review them carefully before buying.

What a deal. Why can't you and I get in on this bonanza? Because we're too small. The government will designate only about five big investor funds -- run or owned by the richest of the rich -- as potential buyers. Hedge funds fit the bill perfectly.

There's a beautiful symmetry here. The hedge fund managers who raked in billions last year wouldn't have done nearly as well had taxpayers not bailed out Wall Street to begin with. According to John Taylor, a hedge fund manager who tied for ninth on Alpha's list, many funds would have gone belly-up had the government not acted. "Thank god for the government, because if they hadn't intervened, we wouldn'thave had anybody to trade with," he told the Times.

So you and I and other taxpayers have kept these hedge-fund honchos flush enough to be able to reap the bonanza that Geithner now wants to bestow on them for cleaning up the mess they and others on Wall Street made -- a bonanza to be financed by you and me and other taxpayers, who are taking on all the risk.

I read this morning that Larry Summers earned nearly $5.2 million in the last two years working one day a week for D.E. Shaw, one of the largest hedge funds of all. I can't help admire Larry for sacrificing all the money he could be making now had he not chosen to work for the government.

posted by Robert Reich | 7:28 AM

http://robertreich.blogspot.com/2009/04/why-you-should-work-for-hedge-fund.html

[TBF]

1. Reich gets better and better each year...

I think he's had it with all of them. Great blog.

[Skwmom]

2. Didn't you hear, Biden threw out the first ball and Obama might be bringing home a dog.

Why are you even bothering to spend your time on such a trivial matter as this?

[Skwmom]

4. Big Question: Why in the hell are we bailing out hedge funds?

We guarantee bank deposits up to 200,000. But since when did the U.S. government guarantee hedge funds?

[MarjorieG]

8. We didn't guarantee or regulate, so we're stuck with all this phony money/debt.

We still have to settle this area that has mixed itself up with banks, AIG, etc.

[high density]

12. This is speculation by Reich

He thinks the hedge funds will buy toxic assets under PPIP and then we'll need to bail those funds out if the PPIP assets lose value. He doesn't present a serious scenario under which that would happen. I think it's more likely that the toxic assets will be money makers once the economy improves, people regain their jobs, and the number of performing loans increases in each batch of mortgage backed securities.

[QC]

5. So true. People need to get their priorities in order. n/t

[Skwmom]

6. Those "behavioral scientists" must be working overtime.

[QC]

9. So what kind of dog are you hoping for? n/t

[xchrom]

3. recommend

[MarjorieG]

7. These guys have the only money left. ill-gotten, to buy these assets, which we need gone.

Bargaining with the devil, but there will be assets we the public don't have to buy.

[democracy1st]

10. K & R

[high density]

11. The private investors won't lose a thing?

Granted, the risk to the taxpayer is vastly greater than to the investor, but the investors could stand to lose their entire investment as well. Reich seems to be speculating about a future bailout of the bailout, but I think it is silly to bring up hypotheticals like this when not a single transaction has occurred yet under PPIP. We the taxpayer stand to lose even more if we simply take the banks into receivership currently.

[brentspeak]

13. "We the taxpayer stand to lose more if we take the banks into receivership..."

And yet you also say "it is silly to bring up hypotheticals like this...".

As for your claim that "investors could stand to lose their entire investment", that's a http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/">laugh.