Andrew Willis: The backlash over billionaire hedge fund managers

Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).

By Andrew Willis, a columnist with the Globe and Mail
(Listen to the original audio)

The U.S. financial magazines are running their annual lists of who made what in the fund manager world.
This is Wall Street's version of pornography. You get pictures of young traders, posed with ties askew, on the edge of their desks, or leaning up against an enormous globe. And you find out one of these pups made $3.7 billion dollars last year.

That was the record-setting compensation paid to a fellow named John Paulson. Five hedge fund managers made more than $1 billion last year. You had to make more than 200 million bucks to crack the top 50 players in this game.

Now, I think this incredible show of wealth is going to provoke a backlash. First, consider the way this money was made.

Paulson and the rest of the hedge funds that made huge scores did so by calling the sub prime mortgage meltdown.They made money at the expense of homeowners, and lenders, in what's turning out to be a U.S. housing crisis.

For the hedge funds, the optics of their winnings are really lousy. This small band of money managers are also making a lot of money at a time when a great many of their colleagues are taking a beating. Banks are in trouble, there's waves of layoffs playing out, and you've got a select few fund managers out strutting their stuff.

That's not going to win these guys friends.

So what does a backlash look like? Well, it's not just about dirty looks at the country club.

The politicians and the tax collectors are reading about these billionaire money managers. For a very long time, the private equity and hedge fund types have got a sweet deals on taxes. They've paid relatively low taxes, by booking a great deal of their compensation as capital gains. Most of us pay higher rates because we pay tax on income.

That sweet deal is coming to a close. For the first time in a long time, the mood in Washington is to make the rich pay.

These hedge fund managers are smart folks. You don't make a billion bucks in these markets by being stupid.
but bragging about making a bundle, when so many in finance are struggling, that's not so bright.

-- For the Business Network, I'm Andrew Willis in Toronto

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