The Hedge Fund Class and the French Revolution

[EV_Ares]

By BEN STEIN - NY Times

LET’S start with the obvious. Hedge funds have created a terribly wealthy new class. Although the data is overwhelming that the mass of hedge funds have not been outperforming the market after fees, money still pours into them. This has often made their proprietors terribly rich. Somehow, by some alchemy of brilliant tax lawyers, these people are paying long-term capital gains rates of 15 percent on their compensation (even though much of their pay is tied to trades with holding periods that last seconds). Doctors and lawyers and writers and actors pay about two times that amount.

Then there are the private equity people. They buy and sell companies, usually with other people’s money. They put up a tiny slice of their own capital and multiply it with investments from pension funds, very wealthy families and foreign government investment authorities, and they buy companies. They shake the companies up, cut spending, cut reserves and then resell them to us patsies in the public markets for huge profits. “Rip, strip and flip,” as they say. I am not saying all of them do, but some do.

The private equity people get an immense interest in the profits, vastly outstripping whatever capital they had on the line. This “carried interest,” as they call it, is then taxed at low capital-gains rates. If the private equity companies play their cards right, they use yet another loophole involving amortization of good will to eliminate any tax at all if and when they go public.

Now, all of the above appears to be legal, in that it conforms to laws made by Congress and regulations adopted by the Internal Revenue Service.

So what? The fact that the law is such and such as of July 2007 does not mean that it has to be that way in July 2008 or even in September 2007. The laws of taxation, like all laws, are political. They are not based on commandments from the Lord God Jehovah carried down on tablets from the mountaintop. They are not ordained by Solomon. They are political, hewn from the give-and-take of lobbyists, expert witnesses, law professors, economists and donors.

((( entire article @ link below)))

http://www.nytimes.com/2007/07/29/business/yourmoney/29every.html

[WCGreen]

1. And it was written by a Republican apologist...

Oy, my head is hurting...

[Captain Angry]

2. One of the many themes I've been interested in lately.

I've been tracking stories about how the extremely wealthy are becoming madder and madder at the unbelievably wealthy.

For all the (non) talk about the class structure in this country, the split between the top few hundred people and the top 1% is widening.

And there is a lot of resentment. Mostly jealousy to be sure, but it's interesting.

This is another such story. The tricks that the most wealthy get to use are not available to the somewhat wealthy.

All the complaining that people at our economic level will never make a change. But when the Ben Steins and the people in the old investing class get upset about the magnitude of wealth that they've fallen behind, we might see some reforms come through.

[EV_Ares]

3. You will be interested in this link - If you get a chance read the

article Richistan. I read it off of the Guardian.

http://blogs.wsj.com/wealth/category/richistan/

[Captain Angry]

5. I've seen that one before. It is interesting.

A friend of mine just returned from going to his brother's wedding in Hawaii. It was done on the cheap, he stayed at a Best Western, ate cheap, etc. But he was there.

He gets back, and gets online on a forum that talks about trips to Hawaii. And the top post is from somebody lamenting that they were going to Hawaii and only allowed to budget $20,000 for the week, not including airfare or hotel. Therefore the $20,000 was just for sightseeing. She was afraid that she'd only be able to sit on the beach for $20,000 a week.

There is a major disconnect out there. There will be some rude awakenings.

[EV_Ares]

6. Absolutely, that link I sent you talks about how these people travel

by chartering, they have no clue what is going on with the average consumer. Also, the very huge increase in these people's wealth can be attributed to this administration. Yes, there very well could be a rude awakening sometime if this does not turn around and get balanced out as it should be.

I and probably you do not begrudge anyone being wealthy in a fair manner. But this has gone to the point of huge greed, consumption and unfair taxation in this country. It needs to be changed.

[Captain Angry]

7. I have no problem with people being compensated for work that is valued.

I have a serious problem with people believing that they are above standard taxation, reporting, or lobbying to create new ways for them to benefit without it being available to the general public.

Avoiding regulation, lobbying the government to crush an opponent, or profiting will full knowledge of the impact on others needs to stop.

People get upset at hedge fund managers making hundreds of millions. Their millionaire customers know what they're signing up for. When those fund managers then use tax tricks to avoid paying their share, they need to see the inside of a real jail cell.

[EV_Ares]

8. Yeah, correct. I would say U & I are on the same pge. enjoyed the

conversation w/u, let's just hope the problem gets addressed. eom/

[Agnostic_Jihad]

4. i like the historical reference

i don't see a guillotine in our future though..

[BuelahWitch]

9. No, not with the way the media puts the rich on a pedastal

And the poor average joe thinks he's going to win Powerball and be just like the rich bastards he sees on TV...

[depakid]

10. Not so sure about that....

There are Mme Defarges out there- and when the economy collapses, there are going to be a LOT of formerly middle class people looking for scapegoats.

[BlooInBloo]

11. lol! That's the stupidest blame-the-lawyers situation I've ever seen....

.... if anything, one should be blaming the mathematicians - or the finance-people-who-think-they're-mathematicians.