On the Distribution of Wealth

There is an article in the New York Times today about how much money Hedge Fund Managers made last year. The top three hedge fund managers take home pay totals to the tune of $5+ billion. (I am trying to figure out how many Tiffany's engagement rings that equals, but I am getting confused by all the zeros!) In any case, the top 25 hedge fund managers earned about $14 billion this past year. That's enough to pay the 80,000 teachers in the New York City public school system for three years. It is also kind of sick.

I am all for people who can figure out how to create wealth. I mean I certainly hope to. But one person making $1.7 billion seems a bit odd. Especially since he does not really "do" anything. I wonder what he tells his children (if he has any that is). He is basically trading pieces of paper using a souped up excel model. It's like the Garbage Pail Kids collection I used to have. In fact, I would suppose that a lot of these hedge fund managers do more damage than good when they play in the public markets. Many of them with a focus on short-term earnings force companies to make decision while beneficial in the short-term, hurt the companies long-term prospects. It's kind of like how the US government refuses to balance the budget, great for now because they can have all these special pork barrel programs everyone loves, but crappy for people in the future who have to deal with the mess.

Anyway, this rant has a little more winding to go through. But today was the last day of one of my finance classes, and I was surprised that the professor quoted from the New York Times article mentioned above. He said people need to think about wealth creation and wealth distribution and not either in isolation which is what the Republicans and Democrats, respectively, tend to do. He also said that anyone who can justify CEO pay in America today clearly has yet learn "common sense". Now if this is true, and I for one do believe most CEOs are overpaid, what does this say about money managers and private equity sorts who do not manage people and who do not "create" anything.

Finally, on a somewhat related note, another group of "financiers" who have often troubled me are so-called "turnaround artists". These are guys like W.R. Ross. Ross is probably best know for the International Steel Group roll-up he created, and sold a few years ago to Mittal Steel, turning a neat $250 million profit for himself. Some might call this a success, but what about all the people who were laid off? who had their benefits cut? Clearly, there was value to go around as evidenced by the considerable sum Ross & Co. managed to tuck away as they steam rolled through the MidWest. According to my professor, every ecosystem needs a vulture. And I guess for the steel industry it was Ross. Perhaps it is with this same lens that one needs to view hedge funds? If you show any sign of weakness, if there is any blood, they will come after you. After all, I guess everyone needs lunch?