4 ms·

OK, I'll pick up where your friend left off. Hedge funds generate liquidity in the market. They do this by placing bets on investments they judge to be sound, u

by rland 6y ago

OK, I'll pick up where your friend left off. Hedge funds generate liquidity in the market. They do this by placing bets on investments they judge to be sound, using capital they acquire from courting wealthy people and big funds. Some of them place bets on the velocity of such bets themselves (derivatives), or bets within a very short time (high frequency trading). They don't deserve 6 yachts, they're rewarded way too much, not taxed enough, not regulated enough, and when they conspire to purposefully, royally screw everyone (08, any pension crisis, any big city civil court docket) they don't rot in jail like they deserve, but are rather rewarded by bank bailouts, university appointments, and golden severance packages. As a concept they're beneficial and necessary, but every individual one is over-compensated, under-regulated, and under-taxed. For just a gut check on this, let's see a hedge fund manager that takes away less in a year than the median wage of the industry or area they invest in. Or even within an order of magnitude.

anm89 6y ago
My argument would be something like: I don't care how much people are compensated if they made it fair and square. Nothing in the financial markets has been fair or square for a very long time, at least since the 2008 bail outs. I'm all for them having 600 yachts if they earned it if they also lose their shirts when it goes wrong. We have just set it up so they get a yacht if they win, and maybe a smaller yacht if they lose, and people are understandably angry about this. But, it's a hard problem, because we have made our entire financial system a maze of smoke and mirrors and quite honestly I don't think anybody really knows how to unwind it, and the whole thing would come crashing down calamitously if we just forced it to happen. Blindly railing against the system is particularly unproductive in my opinion though and I think some number of social justice minded people take pride in not understanding it.
CryptoPunk 6y ago
By what criteria are you judging that they are over-compensated? The judgment seems entirely arbitrary and emotionally motivated. Assuming a free market, if they're earning huge amounts, it means they're unlocking subtantial new efficiency gains, which has significant positive externalities. The large profits in turn are inviting additional time and capital to be deployed into the investment activity that hedge funds engage in, to further exploit this profit opportunity, and thereby, raise the efficiency of the economy. One argument I could buy is that they are capturing more value than they should because regulations are limiting the competition they face. https://www.brookings.edu/research/make-elites-compete-why-the-1-earn-so-much-and-what-to-do-about-it/ https://www.brookings.edu/research/make-elites-compete-why-t... >>The law has also inflated the compensation of hedge fund workers—roughly $500,000 on average—by restricting competition. Mutual funds—which charge tiny fees by comparison—are currently barred from using hedge fund strategies because they have non-rich investors. If the law was changed to allow mutual funds to offer hedge fund portfolios, hundreds of billions of dollars would be transferred annually from super-rich hedge fund managers and investment bankers to ordinary investors, and even low-income workers with retirement plans. A House committee recently approved a bill that would slightly ease the accredited investor rule. Even if it became law, the bill would be a modest step—but at least one in the right direction.
- anm89 6y ago
  I think we see things very similarly, and I also hate the language of "over compensated" as it implies there is some arbitrary fair level of compensation. On the other hand, financial institutions in America have received a lot of compensation that was not "fair", it was just handed to them by governments. If they had been competing fairly most of the major banks in the US wouldn't exist anymore. We really have not had free capital markets since 2008. We have centrally planned rates, centrally planned liquidity, centralized buyers in debt markets. It's really a mess and very few of the outcomes of this system are fair by any metric.
- rland 6y ago
  Ah yes, the brilliant free market. They're overcompensated because they never fucking lose. They just win and win and win and win again. When we do great, they win. When we lose our jobs, our homes, our healthcare: they win And not only that: I would even wonder: new efficiencies have been unlocked? These aren't VC's we're talking about here. Yes, if the risk ever actually hit them, this might approach fairness. But it doesn't. Pointing out that the "market" might punish them for their mistakes doesn't add any value at all to the conversation, because it does not ever happen.
  - CryptoPunk 6y ago
    They do lose. The hedge fund business is risky, and hedge fund managers and funds that lose money. >And not only that: I would even wonder: new efficiencies have been unlocked? Yes, if they are making good investments, that generally maps to them allocating investment capital - which is a claim on the finite labor and natural resources at the economy's disposal - to where it generates the biggest return to the economy.
    - rland 6y ago
      Weird. If I lose my employer money, I lose my job, my healthcare, my family's healthcare. (And, if I were in a precarious position, my house) What happens to hedge fund managers? Oh, some division of Morgan Stanley has lost money, I'm sure. What consequences did they face? A stern talking-to? Spare me.

by rland 6y ago

anm89 6y ago

My argument would be something like: I don't care how much people are compensated if they made it fair and square. Nothing in the financial markets has been fair or square for a very long time, at least since the 2008 bail outs. I'm all for them having 600 yachts if they earned it if they also lose their shirts when it goes wrong. We have just set it up so they get a yacht if they win, and maybe a smaller yacht if they lose, and people are understandably angry about this. But, it's a hard problem, because we have made our entire financial system a maze of smoke and mirrors and quite honestly I don't think anybody really knows how to unwind it, and the whole thing would come crashing down calamitously if we just forced it to happen. Blindly railing against the system is particularly unproductive in my opinion though and I think some number of social justice minded people take pride in not understanding it.

CryptoPunk 6y ago

By what criteria are you judging that they are over-compensated? The judgment seems entirely arbitrary and emotionally motivated. Assuming a free market, if they're earning huge amounts, it means they're unlocking subtantial new efficiency gains, which has significant positive externalities. The large profits in turn are inviting additional time and capital to be deployed into the investment activity that hedge funds engage in, to further exploit this profit opportunity, and thereby, raise the efficiency of the economy. One argument I could buy is that they are capturing more value than they should because regulations are limiting the competition they face. https://www.brookings.edu/research/make-elites-compete-why-the-1-earn-so-much-and-what-to-do-about-it/ https://www.brookings.edu/research/make-elites-compete-why-t... >>The law has also inflated the compensation of hedge fund workers—roughly $500,000 on average—by restricting competition. Mutual funds—which charge tiny fees by comparison—are currently barred from using hedge fund strategies because they have non-rich investors. If the law was changed to allow mutual funds to offer hedge fund portfolios, hundreds of billions of dollars would be transferred annually from super-rich hedge fund managers and investment bankers to ordinary investors, and even low-income workers with retirement plans. A House committee recently approved a bill that would slightly ease the accredited investor rule. Even if it became law, the bill would be a modest step—but at least one in the right direction.

anm89 6y ago
I think we see things very similarly, and I also hate the language of "over compensated" as it implies there is some arbitrary fair level of compensation. On the other hand, financial institutions in America have received a lot of compensation that was not "fair", it was just handed to them by governments. If they had been competing fairly most of the major banks in the US wouldn't exist anymore. We really have not had free capital markets since 2008. We have centrally planned rates, centrally planned liquidity, centralized buyers in debt markets. It's really a mess and very few of the outcomes of this system are fair by any metric.
rland 6y ago
Ah yes, the brilliant free market. They're overcompensated because they never fucking lose. They just win and win and win and win again. When we do great, they win. When we lose our jobs, our homes, our healthcare: they win And not only that: I would even wonder: new efficiencies have been unlocked? These aren't VC's we're talking about here. Yes, if the risk ever actually hit them, this might approach fairness. But it doesn't. Pointing out that the "market" might punish them for their mistakes doesn't add any value at all to the conversation, because it does not ever happen.
- CryptoPunk 6y ago
  They do lose. The hedge fund business is risky, and hedge fund managers and funds that lose money. >And not only that: I would even wonder: new efficiencies have been unlocked? Yes, if they are making good investments, that generally maps to them allocating investment capital - which is a claim on the finite labor and natural resources at the economy's disposal - to where it generates the biggest return to the economy.
  - rland 6y ago
    Weird. If I lose my employer money, I lose my job, my healthcare, my family's healthcare. (And, if I were in a precarious position, my house) What happens to hedge fund managers? Oh, some division of Morgan Stanley has lost money, I'm sure. What consequences did they face? A stern talking-to? Spare me.