Back to me

I know more about the hedge fund business now that friend and former student Chris Clair, who works for Hedge World, the industry newsletter, has explain how the funds work.

For a review of my original post, which inspired Chris, go here. For his response go here, here ,here and here.

Silly fellow that I am, I still maintain that when one person "earns" $2.8 billion (with a "b") in one year, something is amiss. With that amount, you could meet the salaries every wage earner in Beaverton and Gresham.

You could feed entire impoverished populations for a year. Children would not starve.

You could save thousands of lives.

But $2.8 billion is what one mortal man, hedge fund manager James Simons, took in last year. Others in the industry, if that is what it is, merely made hundreds of millions.

At its heart, my issue is not a financial one but a moral one.

In his conclusion, Chris maintains that the question of "how much" these guys should be paid (and they are guys) is "settled by supply and demand" and "this annoyingly elusive concept of 'quality.'"

Supply and demand? The world has only one Chris Clair and Rick Seifert. We are in short supply. A mere one of each of us. We do good work. We are in demand. We are paid adequately. We are paid enough and should be thankful for it and the skills we have to make us "worth" as much.

Where's the short supply and pressing demand for hedge fund managers that justifies nine- and 10-digit payments?

No, these guys pay themselves these amounts because they can and because they love money. They live and breathe money. No doubt they are pleasant enough people. They tuck their kids into bed at night, kissing them lovingly on their foreheads. Most are ,no doubt, gracious, kind, engaging.

But they must be blind to the world we live in.

This is not a matter of "supply and demand;" this is a matter of blinding greed.

I'm not inclined to quote Scripture, but these men would do well to ponder the passage from Matthew:

For where your treasure is, there your heart will be also.

As for quality, how can you measure quality when the job description is satisfying greed? As Chris suggests, "quality" is a big topic. It is also amoral. I'm sure there are quality child molesters, hit men, embezzlers, terrorists and torturers. Should society reward them for their quality work?

As far as I can tell from reading Chris' account, hedge fund managers are skilled gamblers who stake other people's money (and sometimes their own) and rake off their mind-boggling cuts. Oh, and they manage to do this at the lowest possible tax rate. You and I make up the difference.

While the world runs on the labor of farmers, truck drivers, teachers, nurses, cops, carpenters, secretaries, the editors of industry newsletters etc. Simons receives $2,800,000,000 for clever gambling.

What's wrong with this picture?

Or is it, as Chris has said, simply "hogwash" to question the "worth" of this "industry," and its lavish individual compensations?

Top Hedge Hogs of 2008

Holy Madoff with it! Today's New York Times “Business Day” section showed the mug shots of the eight "top" hedge fund managers ranked by what they “made” in 2008.

For an accounting of their nine- and ten-digit "takes," go here. For an account of what they don't pay in taxes, go here.

The numbers, of course, boggle the mind. James Simons leads the list with $2.8 billion. That’s with a “b,” and if you write it out, it looks like this:

$2,800,000,000.

To put Mr. Simons' annual compensation in perspective, $2.8 billion is 56,000 times a salary of $50,000.

Think of it — one person whose compensation is that of 56,000 fellow human beings earning $50,000 each.

The $11.6 billion earned in 2008 by the top 25 hedgers is substantially more than the State of Oregon’s annual $7 billion general fund. What this coterie of cash churners paid themselves last year is nearly quadruple Oregon's annual contribution to all its K-12 schools.

Then there is the question of whether any of the top 25 actually did anything to “earn” their largess besides gamble with other people’s money.

Compare their real contribution and productivity to that of the worker who patches pavement, picks lettuce, teaches school, waits on tables, checks out groceries, manages a store, shingles roofs, nurses the ailing, polices the streets and repairs the plumbing.

I have a friend and former student who actually writes for a hedge fund newsletter. I invite him to enlighten me by responding to the following observation: By comparison to most American workers, hedge fund managers contribute zilch and should be paid accordingly.

UPDATE: Chris Clair, who is referred to in the above paragraph, works for the industry newsletter Hedge World. Chris has passed on a three-part response to this post. The first, with links to the second, starts HERE. The third part will be posted later Friday, April 3.