Have these people actually produced anything?

[ribozyme]

One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them.

Mr. Paulson, the founder of Paulson & Company, was not the only big winner. The hedge fund managers James H. Simons and George Soros each earned almost $3 billion last year, according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine, which comes out Wednesday.

Like Mr. Paulson, Philip Falcone, who founded Harbinger Partners with $25 million in June 2001, cast a winning bet against the mortgage market. He pulled in returns of 117 percent after fees in 2007 and made $1.7 billion. The trade thrust him from relative obscurity to hedge fund heavyweight: he now manages $18 billion. Harbinger recently won agreement from The New York Times Company to add two members to its board

Do people like Soros, Paulson, Simons, and Falcone produce anything useful while making money? I am not asking whether they use the money the make for a magnanimous purpose. Of course, I know Soros and Simons donated their money to worthy causes. But to reiterate, did they actually produce anything at all? Did they do anything more than study the market and place successful bets on outcomes? The only thing of value that they might produce is that might help certain pension funds that turn over their assets to them to manage.

I am not asking this because I have malice against them, but because someone mentioned that George Soros created nothing in another thread. Of course, I will concur with that. However, I do not admire Soros because he is a billionaire, but I admire him for his philanthropic work, and his personal philosophy. Unfortunately, if George Soros did not earn his money, his philanthrophy would be rendered impossible.

But I did not ask this question to talk about George Soros - I asked if these people actually produce anything or “work” for their fortunes.

 

[ribozyme]

nytimes.com/2008/04/16/business/16wall.html?_r=1&oref=slogin

Here’s the link.

 

[kesa82]

To even attempt to answer this question would just make me look foolish. Economics is apparently not at all my field.

But I hope you get some responses because it is a good and fascinating question.

 

[deb1]

To even attempt to answer this question would just make me look foolish. Economics is apparently not at all my field.

But I hope you get some responses because it is a good and fascinating question.

I have to agree with the above poster. I know little about economoics but your question, like all your threads is interesting and I will enjoy lurking around listening to more knowledgeable people discuss this.

 

[mmyers]

It may benifit you to look at people’s accomplishments and take the good from it. If you adhere to their every thought and move as your own, you may find yourself in a situation such as this where you are trying to find information to support your conclusion. It is backwards logic to start with the end and try to find more ammunition.

That being said. If you want to find the good in what these hedge-fund junkies are doing than take the good, but if you feel like you have to believe everything that they say, you will find yourself defending people who will ultimately disappoint you.

The reason you may not be getting the response that you are looking for is because it would take a great manipulation of the truth to find supporting evidence of these men producing things on the market in a traditional way. People are less altruistic than you may hope them to be and you are better off not treating them like they are gods.

 

[vz71]

Income does not necessarily have to be tied to what one produces.

It is tied more to what people are willing to pay.

I make more then other network techs, but do the same work.
Right or wrong, doesn’t really play into it as much as what the employer is willing to pay.
The employer perceives me as more valued.

So…have these people actually produced anything?
Short answer…yes.

Real question…is it worth what they are paid?
Short answer…To the one paying, apparently so. To anyone else, it does not matter.

 

[vern_humphrey]

The same comments could be made about atheletes, rock stars, members of the news media, and so on.

 

[rwoehmke]

In my opinion many of these people work to earn the money they get. Whether they deserve the huge return is something else again. My problem is when someone wins big someone else has to lose, maybe a lot of someones. As long as it is other big buck guys losing their pants, no problem. When its a bunch of small holders who have scrimped and saved to build for retirement and old age and one of these guys swoops down and steals the eggs out of their nests, it troubles me.

 

[JimG]

I’m guessing that the “work” they do is this: They assume risk. They could lose big, or they could win big. Most people don’t want to assume risk, because they could be wiped out entirely.
And every time you buy stock in a company, you assume the risk that the company will do poorly, and your investment will be worth less.

(Of course, by holding dollars in a savings account, I’m assuming a heck of a risk that they will decrease in value, as they are in fact doing!)

 

[Just_Lurking]

But to reiterate, did they actually produce anything at all? Did they do anything more than study the market and place successful bets on outcomes?

Arbitrageurs (see here) do the same thing, but without assuming any risk. The argument for their utility to society is that they make the economic markets more efficient.

 

[vz71]

My problem is when someone wins big someone else has to lose, maybe a lot of someones. As long as it is other big buck guys losing their pants, no problem. When its a bunch of small holders who have scrimped and saved to build for retirement and old age and one of these guys swoops down and steals the eggs out of their nests, it troubles me.

Economics is not a zero sum game.

Prosperity tends to bring more prosperity.
Now people trying to subvert the law for a quick buck do cause problems for everyone. But that shouldn’t be considered a problem with a capitalist market.

 

[vern_humphrey]

In my opinion many of these people work to earn the money they get. Whether they deserve the huge return is something else again.** My problem is when someone wins big someone else has to lose, maybe a lot of someones**. As long as it is other big buck guys losing their pants, no problem. When its a bunch of small holders who have scrimped and saved to build for retirement and old age and one of these guys swoops down and steals the eggs out of their nests, it troubles me.

The bolded sentence is not true.

In the commodities or futures markets, you do indeed have a zero sum game. But only the players are affected – if you don’t invest in futures, you have no risk.

In the general market, the situation is different. You invest in a company, and the company uses your money to build factories, buy equipment, manufacture a product, and so on. If the company makes a profit, you as an owner share in that profit. The net worth of the company and the value of your stock can increase – and no one has to lose anything to pay for that increase.