hedge fund bharara stock market rent seeking

Actual US Poverty Twice Official Figure
lobbying dodd frank poverty

As Hedge Funds Get 30 PA, More Americans Suffer

How do fund managers do it? How many poor are there really? How can we reverse these numbers? These three 2013 excerpts are from: (1) AlterNet, May 23, on hedging by L. Leopold; (2) Wall Street Pit, May 29, on wealth transfer by L. Doyle; and (3) RNN, May 31, on poverty by P. Jay.

by Les Leopold, by Larry Doyle, and by Paul Jay

How would you like to invest $10,000 and watch it grow over 20 years into $1,461,920? Well that's what happened at the giant hedge fund, SAC Capital Advisors, which made a 30% return for 20 years in a row.

How is it possible to make such profitable investments again and again and again? By cheating. Their corrupt business model has taken social networking and turned it into a criminal enterprise.

The U.S. Attorney for Manhattan, Preet Bharara, has secured 81 indictments against hedge fund managers and traders, 74 of whom have either have pled guilty or have been convicted. America has 8,000 hedge funds.

High frequency hedge funds set up their super-computers next to the stock exchanges so they get the information a few nanoseconds before the rest of us. This allows them to deploy automated systems to front-run our trades. Between the time you press your E-trade button and the time the trade actually goes through, a high-frequency trader is buying what you want and selling it back to you for a few pennies more. By systematically fleecing stock-market participants, high-frequency traders extract $5 to $20 billion a year from the rest of us.

Hedge fund moguls preen about the universe bestowing a small part of their ill-gotten gains upon institutions that can help them enhance their reputations. Central Park and the New York Public Library are receiving $100 million each from prominent hedge fund managers seeking to polish their images. Colleges want hedge fund managers on their boards and in charge of their endowments. Pension funds scramble to invest in hedge funds, looking to secure a share of the booty.

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An example of rent-seeking is when a company lobbies the government for loan subsidies, grants, or tariff protection. These activities don’t create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.

To a layperson, rent is a term that describes payment made in exchange for temporary use of something, such as an apartment, a store, a car. However, to an economist, rent has a different meaning. An economic rent is defined as a return to a factor that is greater than the return required to incentivize the use of that factor -- “unearned” profits.

Because members of government have lots of power, they have lots of favors to dole out. Firms are competing with each other, but instead of competing for customers by offering better products or better service at lower prices, they are competing for government favors. Instead of employing salesmen or engineers or factory workers, they are employing lawyers and lobbyists.

The House committee’s Dodd-Frank Financial Reform bill has two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, copied nearly word for word. This is “regulatory capture”, where regulators end up acting in ways that benefit the industries that they regulate.

Why does rent-seeking persist? Concentrated benefits combined with distributed costs.

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According to official figures 15 percent of Americans live in poverty, while the real numbers are over 33 percent of Americans cannot meet basic needs. Being poor is somebody who can't meet their basic needs--food, shelter, their necessary medical care. Tally up what the costs are for those things and what the incomes look like to meet those basic needs, then one in three Americans are poor.

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JJS: Hedge funds are a major example of a larger pattern of getting the government to tilt the playing field for you, which creates both undue riches and undue poverty. Hedge funds benefit not just from lenient enforcement, they also benefit from the concentration of wealth in the first place.

One main way wealth gets concentrated is when members of society pay individual owners or lenders for land (and resources) rather than pay society itself. Hedge funds made a bundle off the “housing” bubble which was really a housing location bubble which resulted from us paying the wrong people for land because that attracted speculators who overbid up the price for sites.

But, if we paid land dues instead of land prices, then speculators would lose interest in land. Plus, we’d recover so much public revenue we could pay ourselves a dividend, never mind get rid of the counterproductive taxes on earnings, purchases, and buildings. Just with equitable revenue policy, not even bothering with regulations or handouts, we eradicate poverty and unfair fortunes.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Bail Out The Banksters?

Tax Dollars for Mitt Romney & a Film Pro-Smoking

US Poverty -- Record Numbers Persist

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