Hedge fund managers just want to be loved. So they'd be willing to forgo the paychecks, right?

Cookies for Hedgies! What an excellent idea. I will propose it at the next annual benefit for the Robin Hood Foundation.

Even the most filthy rich financial parasite just wants to be loved and admired, and their current inamorata in the mainstream media seem to be falling out of love. [Sad trombone]

They can pay me a portion of their profits and I'll praise them all they want. Nobody may listen to me, but I swear the jobs Ackman, Einhorn and Asness are doing is amazing. See, its that easy, now where's my check?

All the HF managers now (in gruff voices), "C is for Cookie, its good enough for me, oh, Cookie, Cookie (and Capitalist) starts with C!"

What Ackman and Einhorn and Asness are telling us is that they have a colossal sense of entitlement. To both money and praise.

harryfox has got it. Amen preacher. There is very little evidence that the financial system serves the needs of the nation better than it did before Hedge Funds or Private Equity. All it does is make a lot of money for people I have no reason to like or admire.

"So what?." you may well ask. "It's not illegal."

"Well and good," I say. "We won't lynch them. But I still have no reason to like or admire these people."

Now some of you might think that folks are being too harsh on the financial community, but before making that determination, I ask you to sit yourself down outside the cardboard box many people are currently living in and perform a couple thought experiments (you know, like those physicist guys are always doing).

What is the primary purpose of finance? That's right --to allocate capital in the most economically efficient fashion! Now leaving aside the endless bubbles and crashes we have been experiencing, I ask you, how would we know that they had performed this function so well that the more than doubling of their share of all corporate profits in the last 30 years was justified?

Of course! If they had earned their money, the non-finacial of the economy would have been doing far better than its historical average!
Is there any evidence of this? If there is, the case has not been made. To the contrary --to the average American, the 1950s and 1960s looks like an economic Golden Age, with afforable homes, health care, and higher education --not to mention plentiful, adequately paying jobs. In 1971, for example, a nice home cost less than $30K in the Chicago suburbs, the Bell System had a life-long total health care deductible of $50, and you could send your child to a private school for $200 anuually. The home was about 75% of the annual salary of a government scientist --now it would be 200% or more. The health care deductible is --in most cases --over a thousand per year, AFTER the employee has paid $5,000 or more of the corporation's health insurance costs. A private college is $30,000 to $40,000 per year -- or more like 25% to 40% of a government scientist's salary.

Now, for our second thought experiment. Why do you think otherwise sophisticated people were so easily duped by Bernie Madoff (besides that always required element of a goood confidence scheme --the sucker's desire to get something for nothing)? Could it be ebcause even financially sophisticated people don't think hedge funds are picking and backing superior undervalued companies? In other words --most people think hedge funds are cheating! They are not creating value --they are gaming the system.

My son and a friend of his recently won a Fantasy Baseball League championship with very little baseball knowledge. How did they do that? They used statistical anomalies in the game rules to "game" the system.

There is a general belief that both hedge funds and private equity partnerships have been "gaming" the system. If you believe this is the case, you would believe a "top" player could create improbable returns --and you would not be surpised that he wanted to keep it all secret.

So, in this context, someone might admire hedge fund managers for roughly the same reasons people might have admired Robert Vesco when it appeared he got away with it.

That is, because they appear to have successfully scammed a bunch of other people's money without having done anything actually useful.

Correction. In 1971 you could send your child to a private school for about $2000 annually.

tc,

I agree with your conclusion, but not necessarily your argument. I agree that the financial sector has failed to allocate capital in such a way the returns have been felt pretty evenly throughout society. Even if they've had small successes, it doesn't justify the massive increase in their compensation.

But Wall Street isn't at fault for the lack of 'plentiful, adequately paying jobs." That has more to do with easy global movement of capital, competition from the third world, and (more generally) the fact that most industrial economies seem to develop their way past industrial competativeness. See the northeast of England for a great example of that.

In different ways, education and health care are two other false parallels. They're failures, but they're social and government failures, not the fault of Wall Street.

That said, I completely agree that hedge funds, or Wall Street in general, have done anything to justify their current size to the world in general. And hedge funds specifically have failed in their original purpose, which was to hedge against, not magnify, the risk of financial collapse.