[1]You can play the MegaMillions- but not the MegaBillions Photo Credit: Robert S. Donovan via Compfight
Today, many of you who don’t play the lottery, may decide to plunk down a buck or two on the “MegaMillions” [2] for a chance to win $540 million. In their “how to play” section [3], it doesn’t take that long to tell you what you have to do to win-
“MegaMillions tickets cost $1.00 per play.
Players may pick six numbers from two separate pools of numbers – five different numbers from 1 to 56 and one number from 1 to 46 – or select Easy Pick. You win the jackpot by matching all six winning numbers in a drawing.
What if you win the jackpot?”
Really- after 46 words- “What if you win”
What if you get struck by lightning, while being held by a terrorist, after sitting on a needle in a haystack? But, someone has to win is the common justification for giving away your dollar. That’s right, while you’re hoping to win $250 odd million after taxes (depending on which state you live in) there are people winning the lottery year-in, year-out.
Let me introduce you to the people who’ve managed to legally (and why what they do is legal still is beyond comprehension) make this kind of money by playing with other people’s money. Meet the “hedge fund managers” and I use that term “manager” very loosely.
From today’s New York Times:
Hedge funds have endured a rough year. Tumultuous markets. Tighter regulations. An insider trading crackdown.
But despite the lackluster environment, the top managers still took home $14.4 billion in 2011.
Even when returns suffer, the largest hedge funds can collect big paychecks, thanks to the fees they charge pensions, endowments and wealthy individuals to manage money.
Paul Tudor Jones II charges a 4 percent management fee and takes 23 percent of any profit. So he made $175 million in 2011, although his main fund tracked the returns of the Standard & Poor’s 500-stock index. Steven A. Cohen, whose firm, SAC Capital Advisors, keeps 50 percent of the profit, earned $585 million.
“The industry’s fees and performance are so out of whack it’s unbelievable,” said Bradley H. Alford, who invested in hedge funds while he was at the Duke Endowment in the late 1990s but today oversees a lower cost mutual fund firm that competes with them. “Fifteen years ago, you got double-digit performance for those returns, but last year, the S.& P. was positive and hedge funds were negative. There’s no alignment with the fees.”
But the 10-figure payday is a rarer phenomenon. In 2010, six managers earned more than $1 billion, according to the annual ranking by AR Magazine, which tracks the hedge fund industry. John A. Paulson topped the list, taking home $5 billion.
Last year, only three managers hit the $1 billion mark. Ray Dalio, the enigmatic founder of Bridgewater Associates, seized the top spot, after his largest fund gained 16.05 percent. His payday: $3.9 billion.
In all, pay for the top 25 earners dropped by a third to the lowest level in three years. AR Magazine arrives at its figures by estimating money managers’ portions of fees along with the value of their personal stakes in the funds.
It all comes back to performance. In recent years, industry returns have been “uninspiring,” said Brad R. Balter at Balter Capital Management, as hedge fund strategies that have been “successful in the past aren’t working in these markets.”
The average hedge fund lost 5 percent in 2011, according to Hedge Fund Research Composite Index, which tracks nearly 2,000 portfolios. That compares with a 2 percent gain for S&P 500.
Strong returns account for the difference between a stratospheric payday and one that is just substantial.
Bridgewater’s gains — along with the firm’s hefty $120 billion in assets — catapulted two of Mr. Dalio’s lieutenants to this year’s top earners. Greg Jensen and Robert Prince each collected $425 million.
A relative newcomer, Chase Coleman, a protégé of hedge fund giant Julian Robertson, landed at No. 6 on the list, the magazine said. Mr. Coleman, 36, began his Tiger Global Fund in 2001, and earned $550 million last year, owing to bets on Internet companies like the Russian search engine Yandex. A spokeswoman for Tiger Global declined to comment.
Even longtime managers proved they can rack up big returns. The activist manager Carl C. Icahn, 76, was up 34.5 percent in 2011 and pocketed $2.5 billion.
While the government tightly regulates all kinds of industries, especially the gambling industry- which is the only business I know that is absolutely guaranteed a profit as long as it has customers, Wall Street operates on its own rules and regulations. It can do this because it pays an annual fee to our government to write laws that favor them; I call it the “campaign tax” – a fee paid by the wealthy to buy advertising and support for political candidates who will look the other way while they pay themselves exorbitant salaries from fake manipulations of our capital markets.
“Even when returns suffer, the largest hedge funds can collect big paychecks, thanks to the fees they charge pensions, endowments and wealthy individuals to manage money.”
So they win even if they lose money, unlike the lottery that you may play today.
These billions that are being paid these Wizards of Wall Street are coming straight out of your pocket- and you don’t even have a chance at winning. Ask the hard-working folks who retired from Delphi what happened to their pensions? Or look to the people you know who had jobs working at GM- which went bankrupt while paying many of their internal “managers” million-dollar-a-year-plus salaries- they are now working for much less- losing homes, boats, cars, a future for their kids- and the shareholders who never worked a day in their lives on an assembly line- got made whole with our tax dollars.
Look at the value of your home- and how it’s been affected by the foreclosure crisis- which was caused by the unregulated financial chicanery that’s helping put cash in the pockets of the Wizards while sucking it out of your pocket in large chunks.
There is a real lottery in this country- but it’s the “MegaBillions” and you and I aren’t allowed to play. We didn’t buy our legislators who allow this kind of corruption to continue.
There is one last example to keep in mind of how crooked our country has become. Some would consider playing in the NBA or NFL hitting the jackpot- despite having to have worked hard for years to reach that level of athleticism. But our country has laws in place to protect the players from agents who manage their money- that’s right, the amount a sports agent can charge a client is capped by law [5] to something under 10%, yet we don’t cap fees on how much the people who manage your pension can make, because, well, that would be un-American.
David, This American Life just did an interesting podcast on campaign finance. If you haven’t already listened to it, you should check it out.
[…] The financial illiteracy of most Americans is epic. Most don’t think they have a direct connection to Wall Street since “they don’t own stock.” Yet, fail to understand that their employer may be publicly traded, their pension or retirement (if they have one) is invested, their government depends on bond ratings for public works projects, their car and health insurance are tied to the markets, and their home value is directly dependent on interest rates, lending practices and secondary markets that are being manipulated to maximize profit for a very small part of our society- by sociopaths who don’t have to fear any repercussions for their actions. After all, some of them really do deserve to pillage a billion dollars away from our collective net worth each…. […]