Top Hedge Fund Managers Do Well in a Down Year

Alpha magazine’s rankings show that the top earners took in $11.6 billion by trading above the pain in 2008.

Comments: 88

  1. I am absolutely flabbergasted by the immense earnings these money making grandmasters are pulling in. If there isn't already a word for it, these fellows should decide a name for the science of making loot because they are pioneers in the field. I am wholly ignorant as to the IRC treatment of hedge comp. But with the laughable disparity between their annual earnings and those of the next most lucrative profession, I think there will be a growing backlash primarily rooted in jealously that may well in time filter down into the tax code. My belief is that their activities are (hopefully) legal, so if you can't be 'em join 'em. I only wish I was 20 years deep in the futures trading game. Hate the game, not the player!!!

  2. In my Walter Mitty moments I fantasize about being a hedge fund manager myself, racking up those billion dollar earnings and being able to jet to my villa on the French Riviera. Alas, the cold light of day then hits and I must return to figuring out how I am going to make enough to pay the next month's rent without further depleting my retirement savings!

  3. Thank God we live in a country where wealth is protected by the rule of law. Last week raving lunatics in Congress were threatening to take hedge fund billionaries' property by force! The mob was running roughshod over these people who are struggling to support their families while also giving millions, sometimes out of their own pockets, to art museums, their kids' colleges, political action committees, opera houses--in short, every single one of us.

    If taxing these people's income is how we thank them for everything they've done for us, that is truly the height of insolence. We might as well be Sweden. People don't understand it--because it's not covered in the MSM--but actually most of us are irrelevant parasites who survive off the largesse and generosity that these 25 men and women create.

    So of course they should be treated differently in the tax code! In most developing countries rich people pay no taxes. ZERO! How are we going to stay ahead of countries like Pakistan if we keep on taxing rich people??

  4. Are these the same guys Pres. Obama told us not to make fun of :-)

    I felt like I was back in grade school for a minute there.

  5. Running a hedge fund is an occupation not an investment and the income earned from managing the fund should be ordinary income. No if, ands, or buts! It's ok. I don't think these guys would all pack it in if they had to pay tax on earned income just like the rest of us.

    If my remarks are runaway populism, so be it.

  6. Ironically I sent my 61 year-old mom, who had to cash out what was left in her 401K and cancel her health insurance, the John Stewart interview of Jim Cramer with footage of him talking about how he manipulated the markets when he was a hedge fund manager. These are the people Geithner wants to subsidize to partner with? I am nauseated.

  7. I see no rationale for allowing hedge fund managers to pay the lower capital gains rate on other people's capital gains -- it's income to them and should be taxed as such.

  8. did they all short?

  9. Posing the question like this without an explanation of the issue stinks of just wanting a bunch of ranting commenters to reply with vitriol about hedge fund managers paying a lower percentage tax rate than a teacher, which just isn't true for any of the hedge fund managers described in the Alpha magazine article. The question doesn't even mention the "what" that the treatment supposedly different from. Ordinary income treatment?

    Here is the truth of the matter:

    1. Most hedge funds generate primarily, if not exclusively, short-term capital gains.
    2. Short-term capital gains are taxed as ordinary income.
    3. The management fee paid to a hedge fund manager, as well as the incentive allocation or fees earned with respect to gains will be taxed as ordinary income in most circumstances.
    4. The IRS has already closed the loophole on allowing hedge fund managers to enter into long-dated deferred comp plans that delayed recognition of gains and to defer recognition of income generated offshore. But, even these plans did not change the character of the income when recognized (i.e., it was still ordinary income). The primary benefit was multi-year compounding of of short-term gains without taxation until recognition (which could be very valuable over a 5-10 year period). The majority of hedge fund managers never even entered into plans like this because they needed income in the present.
    5. All of the new deferred comp plans are contingent with cliff vesting in order to defer recognition of gains.

    Where the tax code may justify revision is for alternative asset managers that generate primarily long-term capital gains (i.e., private equity and venture capital funds). I'm really not sure why hedge fund managers are always mentioned in this context when it has really been private equity managers that have taken advantage of this characterization of gains that probably should be treated as ordinary income. The policy problem has been to craft a statute that targets the guys who run KKR without inadvertently causing the little guy who built up his 5 McDonalds franchises over a 10 year period to be subject to ordinary income on his gains when he sells the business. It could raise the cost of capital formation for many small business and start-ups.


  10. I am writing this here as I am even more frustrated about the op-ed letter to Mr. Liddy from that VP of AIG-FP than I already was. First of all, working in the same division that let the entire economy into ruin, one has a responsibility to the entire company, and to be aware and observant of what is really going on. That's like working next to someone stealing money from a cash register and claiming not have have been at fault. Second, the assumption that Mr. Liddy thought the "that the contracts, being both ethical and useful, should be left to stand" is ridiculous! Just because he felt the were under contract, doesn't mean any of the above, indeed if you watched his sworn testimony he would have never created those contracts himself. What is most appalling is that the author clearly assumes the contracts were ethical, when if the company lost an indefinite amount of money, the bonus pool would only drop by a fixed amount, leaving millions of bonuses left for employees no matter the loss...somehow that's an ethical contract? I don't think anyone could care less that you are resigning from this company, if you don't have the strength and commitment to help your fellow americans as Mr. Liddy does, get the heck out. Lastly, the author says he would be the best to decide where the money goes, and not back into the abyss of AIG or the Federal Goverment, hey buddy who do you think is giving you that and all of the 300,000,000 taxpayers...we'll decide what to do with it, thanks but no thanks for your "consideration" in helping others...

  11. Editors: To say that these hedge fund managers were paid the reported amounts is a complete misrepresentation. They were not "paid" any more than Bill Gates was "paid" his wealth. Their gains were largely made by being invested in their own funds much like Warren Buffet and Bill Gates were invested in their own companies. And until these managers actually cash, it's all paper gains and not realized. Taxing these gains would like taxing homeowners every time the value of their homes rises. Arguably, some of their gains are from the incentive fees that their funds earned, but those fees are shared with other staff and also help pay for the firm's expenses.

    As for why most of the managers won't offer real numbers on how much they made, stating how much they made and how much they were invested in their own funds would be tantamount to disclosing performance which is forbidden.

  12. Let me take a wild guess, are these the same people who are against the the financial regulations proposed by Obama?
    These tycoons make winfalls (how about a winfall profit tax?) on other peoples misarey. I think FDR called them unsroupolous money changers. Too Bad they can't take it with them.

  13. There are probably an almost infinite number of ways to slice that lemon. So why not skip it, and proceed to the significant one-should income from one source be treated differently from income from another? Why should capital gains, short or long term, be treated differently from ordinary income?

    Our economy posted its greatest gains when high incomes were taxed at very high rates. That was a period when people worked hard, produced products that people needed, and lived in a country that wasn't a spectacle of rich people parading their wealth. There was never a shortage of hard working bright people, and some of them managed to get rich.

    What was wrong with that system?

  14. Masters of nothing. Tax 'em. Tax 'em all the way back to the stone age.

  15. Of course not.

    Why should they be taxed less than anyone else?

    Why should the earnings of any investment be taxed less than the earnings of labor? Only because those who labor for their living have less political influence. And, apparently, many investors have less influence than this "special" group of hedge fund folks.

    What a corrupt system!

  16. Certainly these men are remarkably talented at what they have devoted their entire professional lives to doing: enriching themselves and helping the very rich become richer. (Does a hedge fund serve any other purpose?)

  17. If it is true that hedge fund managers receive annual compensation based upon performance in a given year, why is that considered long term capital gain rather than short term capital gain? Long term gain is taxed at 15%, short term is at maximum tax rate of 35%, same as a wage earner.

    As an entrepreneur, for me to get long term capital gain I have to hold stock in my company for over a year.

    Which is more productive for society? Creating new companies, new products/services/technologies, new jobs, or moving money?

    It's not as though we're lacking sufficient intelligence to have chosen a career in financial services and running a hedge fund. It's that financial services don't create anything of true value. (or do they?)

  18. There you go again NYTimes. This article should have been in the business section instead of on the front page. If your writers keep feeding into this populist outrage over finance, and you may well be the cause of Barack Obama's inability to do anything.

  19. When you ask Hedge funds to bail you out of a crisis, you don't have a lot of leverage. Compensation details will be protected in contracts and if assets are held, those contracts will be in place for a long time.

  20. Their activities amount to nothing more than grand scale gambling. They contribute ZERO to the productive economy, now collapsing in no small part due the activities of thes hedge fund managers & others like. They are able to gamble with programmed trades because they are unregulated. They & their accomplices -- e.g. Summers, Rubin , Geithner -- claim they don't have to be regulated because they only invest (read: gamble) with large sums from sophisticated rich investors & institutions, not the little investors who are the only ones who should be protected. This is the myth the big boys have originated & continue to perpetuate. It's nonsense of course, as they've made billions gambling with the toxic assets (now called by Geithner et al "legacy" assets, untentionally signaling that we, our children & grandchildren will pay for these scams for many, many years to come).

    Bottom line: hedge funds MUST be regulated via Congressional legislation & executive orders enabling the SEC to do its job proitecting the nation & the markets. It hasd failed because the big players have seen to it, so far, that they remain unregulated. If they own this president & this Congress, We the People will continue to pay & the big players will continue to pocket billions unregulated at our expense.

    Don't let them & their PR agencies fool you. The PR machines are now very busy planting fawning articles & commentary whitewashing hedge funds, generating personal sad sack tales attempting to paint AIG gamblers as poor victims of a new McCarthyism.

  21. Enough is enough. I have no problem with these people making money. The issue is the deal that Obama administration is going to make with these people to buy the toxic assets. They get to make more money if the things go well. If they do not we, the tax payers lose.
    My wife and I make about 70k a year. She was just informed that she will have to take a 10% pay cut to keep her job. I have a message for our government, be careful how you proceed, people like my wife and me whom are law abiding citizens; that have always played by the rules are sick and tired of this rich mans gaming of the economy. I'm ready too take to the streets, my level of anger is now to the point that I have to turn of Charlie Rose when his program is talking about this subject as I find myself yelling at the TV and it's freaking out my dog. I can only assume that millions of people in this country are thinking as I do. When I march my banner is ENOUGH!

  22. Our Mission, to go boldly, or boldly to go
    where no man has gone before. These are the voyages
    of starship Rupert.
    >Captain, we have just enough energy t' make it to
    planet WallStreet.
    >>>Yes Captain
    >>Spock what is a non-recourse loan?
    >>>An earth term, captain, from the 21st Century
    >>>"Non recourse loan", it means I collected the collateral from you
    and then set it as the basis for a no risk loan to those guys over there,
    the ones getting out of that Bentley. If the asset they buy with it
    depreciates, we make them whole, but we put a hole in you, got it?"
    >>"Of course, no recourse"
    >Captain, I was wrong, we canno' make it t' planet
    >>S.O.L. Scotty, well Jimmy I guess that's a wrap,
    let's go to the gym and duke it out.

  23. The salaries are laughable -- and totally out of touch with reality. the cost of these excessive payments can be measured in the lives of children. For every unit in excess of what is necessary for dayly life on this planet, one child must die -- through scarcity of resources caused by this increadible human hubris and greed.
    This must -- and will -- stop. It is inevitable that such excess will eventually feed itself out. Like the overfishing of the world's fisheries, this sort of over strip-mining the world's financial resources will and must end.
    Such huge salaries are totally immoral and unethical. No one can justify such income when millions are suffering and starving -- unless one can also live in a world of excessive luxury will watching children across the street die from a blaze in a garbage dump where they were picking through garbage for scraps of food thrown away by those better off.
    these people -- and the rest of us -- should be embarrassed to have remove more than a mere pittance from the world's economy. One look at the Congo, for example, should inspire anyone even remotely sane to donate everything they don't need immediately to relive that unimaginable suffering. Our failure to do so only shows our own blindness and insanity -- and the fact that we do not deserve to be Americans.
    How can we ask our young people to sacrifice it all in the military when others among us draw down such huge obscene amounts of money? A benchmark should be $250,000. That should be the absolute cap. Anything more than that is automatically given to the poor... and a substantial amount of the $250,000 as well. A truly sustainable economy cannot be had as long as these excessive earnings are even contemplateable, let alone actual. They are not only gross, they are insane and a sure prescription for disaster. Anyone who accepts the possibility of such excessive payments has no real understanding of economics (which is actually well explained in Al Gore's "Inconvenient Truth" -- if the small parts of the food chain are not health, the whole food chain collapses --as is happening right now in world economics.)
    Unfortunately, no one in the public sector has the courage to say that these Emperors have no clothes.

  24. Compensation?

    I probably don't really understand the market, but for someone to make an enormous amount of money, somebody has to lose something comparable, no?

    Earlier today on NPR, a commentator said that in the Great Depression, at the time of the crash 3% of the population was invested in the stock market.

    But today in the current "downturn" where half the value (7/14) has vanished, 60% of our population had invested in the stock market.

    So does that mean, a few people ended up with everybody elses life savings?

    I'm sure I don't understand.

  25. The can and should be subject to pay taxes on their income at the same rates you and I pay. Not the 15% they get away with now. Heck people like John D. Arnold are making $1.5 Billion and his secretary and maid pay a higher percentage of their income in taxes (and trust me, if you make $25K per year every last cent counts). Just think of all the healthcare benefits we could pay for if we just taxed these people like we do everyone else who is doing their job.

  26. Aren't these the people who Congress thinks should be taxed at a measly 15%? Congress was outraged at AIG bonuses but has been supportive of this group paying next to nothing in taxes on their billions in gains. I say vote them all out of office.

  27. oh god I wish the NY Times would put a comments blog underneath the AIG letter today and not this. All these finance people don't seem to get it.


    Boo had a contract. Many of us did. Many of us were told our investments were safe. Many of us worked 14 hour days.

    But you know what....there's nothing most Americans can do about that now. That's why you support your government when they want to regulate. Because there are bad people, and bad managers, and life is not fair. Deal with it, like the rest of us do.

  28. WHO NEEDS AND CAN SPEND $2.7 BILLION IN A YEAR? (The capitalization and emphasis is mine.) How many houses can a person own seeing that so many people are out of work, having their homes forclosed upon and are living in tent cities across the land. There is something fundementally wrong with having that much money and I include Bill Gates and Warren Buffet in that. It's outrageous! I have just begun receiving a little over $1,100 per month in pension. How will I ever live on that?

  29. I just wish I was a very close relative like a child or someone in the inheritance chain. Oh well luck counts.

    These guys might be demonized but they made decisions in business that earned them huge commissions and presumabkly also did well for their clients. The only complaint I have is that thanks to Bush they won't be paying thier fair share of taxes.

  30. Please stop advertising these guys.

    Those who outperform the market one year, underperform it the next year or the next one (or their name is Madoff). All studies demonstrate that none of those "wizards" do in average better than the market in the long run.

    Your paper advertising again the over-performance of some in the short term, just helps to maintain the arguemnts to try justify the outrageous money the earn without solid justification.

    It is high time that the money earned by the Finance Boys becomes again more reasonable as it was before the last decade (and it was already very comfortable).

  31. With homeless people losing their jobs and living in tents, and hard working people being paid less than $10.00 an hour, there is absolutely no justification for individuals reaping this kind of money in the United States of America. It does not come out of the thin air, it comes out of the financial system somehow. It's an abuse of the free enterprise system and needs to be corrected, by taxation if necessary.

  32. You must be kidding. Have you no common sense, no morals? People gambling with the destiny of everyone else in the world should be privileged when they steal?

    Yes, they should be treated differently in the tax code. As they create nothing that can be seen, tasted, felt, smelled, or heard, they should be taxed at double the amount of anyone else earning at their level - which would only be 70% (actually 63% as they don't pay anymore FICA after 90K) which is still 32% percent below what their dollars in the last bracket would have been taxed at during the Eisenhower era. (figuring a 95% top bracket.)

    Everyone should be aware that NYS/NYC actually have a regressive tax system. Fees such as tolls, public transit fares, licenses, etc. all impact on those earning less. In this city/state we have a basically flat income tax, kicking in at 13% at about 26K for single taxpayers. (Just go look at the form) and don't forget the FICA give back at 90K of 7.5% drop in the amount of tax you pay.

    Where is Congress already? Why is Schumer worrying about gay marriage as the economic system he helped create is starting to collapse -- with no real intervention at all? Pathetic.

  33. The article's headline in the newspaper copy mentions the "top 25", as does the link to the slideshow. So - Who are the other 15?

  34. In the greatest economic catastrophe since the Great Depression, these individuals still manage to pocket sums greater than the entire nominal GDP of nations such as Somalia, Sierra Leone, Belize, Liberia, and dozens more.

    And that is just income for one year, rather than their entire wealth! How is it possible that ONE individual can supposedly create more wealth than millions laboring? And do it, no less, by betting on economic misery for the rest of the world!

    And the Times smirkingly asks: should they be treated differently in the tax code?

    I say NO! I make $9 an hour, and why shouldn't I be taxed at the same rate as someone making a $1 million an hour? Leon Trotsky notes in his essay "Marxism in our Time" that "In the United States, where a man who owns a million is referred to as being “worth” a million, market concepts have sunk in deeper than anywhere else."

    And what beautiful concepts they are! I'm worth $9 - socially, intellectually, culturally. John Paulson is a superior being, by a multiple of thousands. How do we know scientifically? His wealth! Look at the numbers folks! It's all so simple. This is why we teach math in schools (cept' in places like Pontiac, Michigan, where all the teachers are being laid off...)

  35. Yes. Instead of being taxed at a lower rate than other forms of income, it should be taxed at a higher rate because it is nonproductive income.

    The Constant Weader at

  36. Time to start taxing these speculators at the regular tax rate like everybody else.

  37. A salary is a salary, they should have to pay taxes on their income just like the rest of us. The very idea that they only have to pay 15% income tax bothers me everyday. It makes no sense why hedge fund managers are allowed to be taxed at such a low rate.
    It's ludicrous.

  38. ill gotten gains are never taxed

  39. The focus of the tax code should be to incent the very wealthy to reinvest in the economy rather than accumulate idle luxuries (products and services) that largely trickle down only to foreign shores, or to lock that wealth up in real estate holdings. However that is best achieved, I would support such tax policy.

  40. The amount of money these men is astounding. The question, of course, what they do with it. David Shaw, for instance, is attempting to cure cancer. Just as Bill Gates is attempting to rid the developing world of disease and poverty. George Soros has been instrumental in helping to foster the cause of freedom in the former I applaud these efforts. No one is accusing them of braking the law or committing fraud. Let's judge these individuals by what they have done and what they continue to do -- not by the wealth that they have earned.

  41. Are these the saviours of Anglo-American capitalism? Are these the masters of freemarket liberalism? Are these the heroes of the smartest and most ambitious youth? The tax code should regard capital gains as income, and revise the income tax code to 90% rates over $500,000. With earnings of hundreds of millions, they would still be making more per year than anyone else in the world.

  42. Why doesn't this article reveal which of these hedge funds received money from AIG thanks to the TAXPAYERS OF THE UNITED STATES. Many of these fund managers bought credit default swaps "insurance" (derivatives) from AIG BETTING that the housing market would fall(they didn't even own mortgage securities). AIG didn't evaluate or price the risk accordingly and therefore owed these counterparties billions of dollars when the value of the morgage securities decreased. Whose side is the New York Times on? The same question can be asked of Pres.Obama and his unfortunate ties to Wall Street. Taxpayers should not be bailing out hedgefunds who took a counterparty risk on the solvency of the system with their hedgefund bets. So yes hedgefund managers should be taxed accordingly, especially because they have taxpayers to thank for much of their money! (Google some of the names on this hedgefund list and see who received taxpayer money.)

  43. I think of hedge funds and their ilk whether legitimate, regulated or beyond the law as a big pail of coins. You and I come along and drop some in and they come along and scoop it up. That's how wealth is distributed.

  44. At a time when financial institutions have failed so catastrophically to manage their affairs prudently, it is easy to jump to the conclusion that hedge funds are overpaid and deserve to be taxed to the maximum. However, it should also be born in mind that hedge activity by definition is very risky. In order to make enormous profits these funds must take large risks, which means "the very real probability of losing invested money". This downside risk is all too apparent in the case of the banks and insurance companies that have lost incredible sums of money and shifted their loses onto the taxpayer.

    However, it should be born in mind that the current financial situation is anything but normal. Its only because the institutions involved are so large, and their role in the international and domestic economy so central that the taxpayer is forced to come to their aid. Every other player in the financial markets have to pay their own tab and deal with their own loses when they arise.

    So the real question is not whether to tax hedge funds unnecessarily, but whether proper oversight and regulation is in place to protect the taxpayer from the greed and stupidity of massive financial institutions such as Lehman Brothers, AIG, Bear Stearns and the other miscreants of the financial industry. Quite clearly there was not enough regulation. And for that reason alone the financial industry is in tatters.

    The point is that if you tax the profits on risk taking unnecessarily you will eliminate risk taking altogeather. This is a very important function the financial markets. On the other hand if you don't regulate and manage the financial industry properly then undue risk will be taken and which results in the catastrophic situation which has arisen over the past year and a half.

  45. So we finally meet the men who took the other side of the bet with companies such as AIG and Citigroup. These are the gamblers who we're paying off 100 cents on the dollar for every foolish bet our unfortunate fellow Americans at these icons of finance made. I have to admit I'm not impressed.
    The decision to allow these men to keep thier hard earned money at a more favorable rate than the wage earner is rooted in the world view that greed is good for everybody and seems to be built into the fabric of our languge. We can hardly even describe a more just allocation of finite resources without seeming either naive or deluded.
    So its onward and upward for the masters of the universe and thier good friends in government. I imagine they'll still have the sons and daughters of working people to fight thier wars since the "volunteer" army will be the only job around.

  46. It does not make me angry that they did so well as they are money managers and obviously did a good job for themselves and their investors last year. They are practicing capitalism and making money from doing so. That is the way the system is supposed to work.

    What does make me angry is that they get preferential tax treatment on the money that they earned while other financial advisors who do not manage Hedge Funds but are paid by assets under management have to pay ordinary income taxes on their income.

    The tax code needs to be changed so that these Hedge Fund managers pay taxes like the rest of us. It is a glaring loop hole in our tax code.

  47. Here's what I've always said...."you can't make billions of dollars a year without producing or making something....the only way you can make that much money is if you steal it".....this stuff should be illegal....what good are their activities to society....have they developed the cure for they figured out the energy they figured out how to sustain life on other haven't done anything...except steal other peoples money....

  48. It is not just what these managers make, it's the billions of dollars their hedge funds are making. What they make someone else loses, which more than likely effects the ordinary investors who put their savings into stocks and mutual funds. These hedge funds are manipulating the market and creating the losses for the unsuspecting investor.

  49. Its time for the U.S. to change tax codes. If hedge fund managers are making hundreds of millions of dollars we should be taxing these people and for that all people who earn ten if not hundreds of millions of dollars. Quite simple one would pay the regular tax rate to say 5 million then starting at five million every dollar earned above five million would be taxed at 60 percent and when one reached twenty million in income all income over twenty million should be taxed at 75 percent. There are only a few groups of people earning this kind of money entertainers, sports figures and hedge fund managers none of whom manufacture anything of a real net worth. For the Bill Gates of the world people like this would not take outlandish salaries as they would have ownership in a company that actually manufactures a product. I'm not a religious person by any means but I admire the bible for its portrayal of the money changers as evil people. Wow the bible does have some things right.
    The top 5 percent of Americans hold over 85 percent of the wealth, if this is what democracy and free markets bring stop the bus I want to get off.
    tom mcmahon
    [email protected]

  50. Timely artcile!
    NOTHING WRONG with the fact that these HEDGE FUND folks made this much money! HEDGE FUNDS are legally allowed to exist and play their role in our system of "FREE MARKET" philosophy and under our CAPITALISTIC System. However, I am somewhat confused in trying to understand the underlying LOGIC(!) behind classifying the Hedge Fund gains as "CAPITAL GAINS" and not as "PROFITS"? Why I want to know? Because, from what I read, these gains are TAXED at a MERE 15% (!) Afterall, I thought, these folks were just another type of "DAY TRADERS" - except that these "BIG TIME PLAYERS" do have vast resources and connections - so they lobby to make sure that the TAX LAWS allows them to classify the "PROFITS" as "CAPITL GAINS"! So!, may be, what we need in these of days increasing "budget deficits" is a CHANGE IN TAX LAWS to classify the gains as "PROFITS" and make them subject to higher tax rate?
    Furthermore, in the face of our current financial meltdown, it would be nice IF new laws are pased to bring these HEDGE FUNDS under stricter purview of the SEC and other US Governmental Agencies. FOLKS!, don't hold you breath! - we will be forced to enjoy th "polluted air" in the BELTWAY and the Congressional
    Circle for a long time!. And don't forget!, we, as a nation, have become a "Role Model" as "BAIL OUT EXPERTS", practicing a unique type of CAPITALISM: Private firms get to keep their "gains" and pass on their "losses" to taxpayers!. The general public and our elected leaders seem to learn nothing from the history - at least starting from the days of our
    much-revered Mr. Greenspan and the demise of the Long Term Capital" Hedge Fund started by none other than by some NOBEL PRIZE WINNERS in the 90's. SO!, GOD HELP US!...and AMEN!

  51. "Of course, their earnings were not unscathed by the extensive shakeout in the markets."

    What exactly does one have to do to "earn" $2.5 billion?
    Twice as much as someone who only "earns" $1 billion I guess.


    Its shocking how all of the AIG counter-parties get paid out and made whole. If I make million dollar bets with people that have no way of paying if they lose, would uncle sam make me whole???

  53. The amount of poverty and suffering required for the emergence of a Rockefeller, and the amount of depravity that the accumulation of a fortune of such magnitude entails, are left out of the picture, and it is not always possible to make the people in general see this. - Ernesto Che Guevara

  54. how dare Robert Sloan say an annual income of $75 million should not pop up on the greed meter? What rarefied circles he must travel in to not have a clue about how the rest of us live.

  55. Anyone who says putting these people in a 50-percent marginal tax rate will hurt the economy is living on another planet. Yes, they can quote "studies" and "research" by, say AEI. But keep in mind that this is the same PR mill that cheered us into invading Iraq by providing "studies" and "research" purportedly "proving" that Saddam was behind 9/11, was in cahoots with Al Qadea, and had nukes in pants pockets. Their economic "research" is just as politicized and thus suspect.

    We should tax all income at the same rates, whether a flat rate or progressive rates. Taxing investment income at lower rates than salaries and wages punishes people who work for a living. The last thing we need is a tax code encouraging speculation. Further, this would greatly simplify the Internal Revenue Code.

    PS: I really liked B. Mull's pseudo-John Galt rant. The sad thing is that far too many people actually believe it! They seem to especially infest Silicon Valley.

  56. The original point about hedge funds is that you were putting your money where you could get high returns for high risk, with little or no regulation.

    Regulating them will just send the hot money somewhere else. Maybe you should think about regulating people's investment options. That'll be real popular.

  57. That is ridiculous, no one is worth that much money. The rich get richer and the poor get poorer. Hopefully enough people are starting to wake up to these excesses. Greed, greed and more greed seems to be the American way. No universal health care, no college for our middle class children. It's unfortunate in our country that a school teacher must work 2 jobs to make ends meet for his family. With budget cuts happening in education all over the country, I know we haven't gotten a raise or a step increase in several years. But, our health insurance premiums keep going up, so we earn less each year. American values, how about another bonus!

  58. This feels like the point in the game of "Monopoly" where one person owns all the hotels and property, the hedge fund (capital oligarchy) managers in this real-life version of the economy, and the the rest of us (labor or non-owners of capital) just keep paying out with no hope of a piece of the pie.

    Can we please change the rules of this game board, this is painful to watch and the ramifications are not fun.

  59. Funny how there's no mention in the article about their tax rate on these astronomical earnings being 15%!

  60. Where has all the money gone? Gone to Hedge funds, my savings. When will they ever learn? When will they ever learn?

  61. When was the first hedge fund invented?
    When was the IRS code changed to give them preferential treatment?

    Under BushI, people paid up to 28% on long term capital gains -- and frankly free money should be taxed as income and progressively. No more tax-free muni bonds like the 6.5% bonds issued the the MTA in NYS less than 6 months ago. Which super rich people got these no risk pieces of paper? and where was the Times with that story?

    How about some truth about taxes?

  62. Hedge funds now control about a third of wall street trading dollars, and the number continues growing.

    What mechanisms are in place to prevent these individuals from receiving the lion's share of bailout dollars, while the nation goes bankrupt.

  63. Editors: To say that hedge fund managers were 'paid' the reported amounts is a complete misrepresentation. They were not 'paid' any more than Bill Gates was 'paid' his wealth. Their gains were largely made by being invested in their own funds, much like Warren Buffet and Bill Gates were invested in their own companies. And until these managers actually cash out, it's all paper gains and not realized. Taxing these gains is like taxing homeowners every time the value of their homes rises, and not when they sell their homes and realize their gains. Arguably, some of the gains are from the incentive fees that their hedge funds earned, but those fees are shared with other staff and also help pay for the firm's expenses.

    As for why most of the managers won't offer real numbers on how much they made... stating how much they made and how much they were invested in their own funds would be tantamount to disclosing performance which is forbidden by the SEC.

    Some may try to villify these top hedge fund managers, but among them, I see very few who actually helped create the asset bubble that caused the current financial disarray we find outrselves in. In fact, by and large these very managers are the ones who had been warning that the financial markets were getting too frothy. They made their moeny because they bet against the rampant greed that drove up real estate prices, sold fraudulent mortgages, and then leveraged it all to the hilt.

    It feels unjustified that someone, anyone, could be making anything close to $1 billion dollars, let alone $2.5B, in a single year when most of us scrape by with about $40-60,000. I for one, have a hard time reconciling whether any one person's contribution can really be several thousand times greater than another's. But hedge funds are not the one's who have denied access to such investment vehicles. It has been government. Most hedge funds would love to be able to have normal people invest in them. They would also like to able to communicate directly with the public to address misconceptions, but they can't - they're not allowed to.

    Yes, there have been fraud committing hedge fund managers, but that is not a reflection on the entire industry. Afterall, there have been crooked preachers, so should be ban religion? In a society based on rule-of-law, oversight and regulations should certainly be applied, but care must be taken to not foment unreasonable demands for draconian responses.

  64. Gotta laugh at this. These hedge fund guys are way smarter than the pathetic progressive mobs who express their jealousy. And it is jealousy. These guys make billions, and the progressive mobs go after bank employees who make $250K. Sure they should pay taxes at ordinary income rates (if they are not already paying tax at those rates), but most of these guys make their money honestly. The problem is that they may be smarter and willing to work harder and take more risks, or simply greedier, than most of the jealous progressives.

  65. I think the point is not whether they have earned these colossal sums legitimately or not or whether they deserve to. They clearly do on both counts. They should be taxed as anyone else.

    Hedge funds exploit both market and information imperfections - i.e. arbitrage to make money by scanning prices all over and trade over very short time scales that could not be achieved without the use of sophisticated algorithms and computers. They do this perfectly legally and with the use of methods that requires advanced skills- they are not gamblers but they could be wrong.

    The real issue is that although this industry accounts for trillions of dollars it is not productive use of capital and hence there is no real societal gain. Thus it is a pity that this industry draws in some of the most qualified minds, purely driven by excitement and financial greed because these people would clearly make a good living otherwise.

  66. ever look into what some of these people are doing with regard to philanthropy?

  67. Jim Benzoni,

    Global wealth isn't zero-sum.

  68. Keep in mind that many more hedge fund managers lost money than made money last year.

    If hedge fund compensation is treated as ordinary income, then these hedge fund managers will just trade for themselves as individual investors. If the capital gains rate is the same as ordinary income rates, then there is no advantage in taking additional risks in investing; stock and asset values will be worth even less than they are now.

    Do we really want to tax every increase in asset value by ordinary income rates? If so, be prepared to pay hefty taxes when housing prices rebound.

  69. These gentlemen are undoubtedly proud of their hard work and success. It proves how intelligent they are. Because they devoted their intelligence to making money, they have billions, while school teachers can barely afford an apartment and doctors lose their pensions. And because their success and their money means political power, they pay lower tax rates than the average factory worker.

    What do they produce? What did they invent or discover? What do they do for society? They would argue that they "distribute capital and manage risk." They work hard and "take risks." The same argument made by Long Term Capital, AIG, and every other speculator who has cost our society a great chunk of its future.

    As long as our society gives its biggest rewards to financial speculators, that is where our best minds will go. The rest of us become the tax base and labor force funding their mathematical speculations. If they succeed they may even buy us a few libraries and hospitals as a gesture of gratitude.

    America has so much abundance. And we organize it all in such a way that we have billion dollar lotteries on the top and hundreds of thousands of homeless children on the bottom. Our superstitious idolatry of the "free market" is producing a very sick society.

  70. Jim Benzoni,

    Global wealth isn't zero-sum.

  71. These are nothing but master theives, practicing legalized thievery. These scoundrels are doing nothing productive and are diverting huge sums of money into their pockets. Lets tax these thieves until it is no longer profitable.

  72. let them suffer like the rest of us and tell the banks to let lose of the money we gave them already

  73. Why doesn’t anyone do a story about how overstated the Alpha numbers are? (At the very least, note that they are approximations of firm revenue, not profit — much less individual take-home pay.) You already have a source in this article noting they are 5x too high. Would the NYT publish any other kind of story based on such overstated figures?

    Or do you not want the facts to get in the way of a good backlash?

  74. I'm in two minds about hedge funds and hedge fund managers. Jim Cramer's tapes from the Jon Stewart's show tell us what sort of "shenanigans" these enterprises may operate in. I hope all these companies don't operate on ethical boundaries.

    To a comment above about how we should all be indebted to hedge fund managers because they donate so much money... I'd much rather have fair-play in the stock market than donations to art museums and the opera. Donating money doesn't wash away your sins.

    Somehow I loved the line from the FreeMasons commercial on TV... The worth of a man isn't measured by the wealth he accumulates but by his thoughts, actions and deeds. Is that the Jewish ideal of a Mensch?

  75. The Germans and French who know a thing or two about the political consequences of economic instability in their recent (even by American time-scale) history, intend to regulate the shadow banking system, off-shore accounts, hedge funds, private equity, etc. to constrain the effects of these players on society. The Americans are paying lip service to these intentions for the G20 meeting in London, preferring to use quantitative easement to provide even more money for these players to absorb into their games. The best way to limit the damage for the American body politic is to revise the tax code, including deferral, and direct the IRS to pursue vigourously amounts off-shore, evading tax in labyrinthine shells.

  76. And here come the communists....

    This is still a capitalist system and these individuals made money for themselves, and for their investors. Capitalism is not a zero-sum game. Get over yourselves!!!

  77. It's amazing to me that after all these years, the financial "experts" at the Times and other news outlets haven't the faintest idea what James Simons does or how he does it. Suffice it to say, it differs markedly from what other hedge fund biggies, not to mention investors in general, do.

    BTW, Simons does not object to proposed tax and regulatory reforms. Neither does Soros. But, politically, they're outliers among the fraternity of investment gazillionaires.

  78. So how is hedge fund compensation treated differently from others? Can you provide evidence that there is a difference in tax treatment?

    Such a question is incredibly inflamatory.

  79. What do you expect? Hedge funds operate outside of the law. No wonder they are doing well. If Obama does nothing else in the next four years, he will ensure that laws are passed to place hedge funds and other similar entities that work without adequate or insufficient controls are forced to work under the same rules as traditional banks do. Concerning indecently high earnings, a tax rate of 80% for all earning over 1 Million Dollars ought to do the trick.

  80. The question is: were they manipulating the market? Are they to blame? I would say someone needs to look into that.

  81. A paragraph in your article opens with the statement:

    “The managers’ compensation, which was breathtaking in the best of times, is eye-popping after a year when hedge funds lost 18 percent on average, and investors withdrew money en masse.”

    Perhaps a more descriptive if not more accurate statement would be:

    “The Managers’ compensation, which was obscene in the best of times, is eye popping legal thievery during a year when the hedge funds lost 18% on average, and investors withdrew money en masse.”

    Unless the legal structure and regulations surrounding this “industry” are changed to eliminate this abuse, these leeches will continue to suck ever larger volumes of the blood of capital away from the productive sectors of our economy.

    In medicine, doctors used to prescribe leeches because they regarded them as essential to success in treating a variety of medical conditions. In fact, they were detrimental and even deadly to the patients. I fear this may be the case with our market economy. The leeches are getting bigger than the patient. They are sucking the blood of capital away from us all.

    Bruce Olson, Houston

  82. To make the population feel better I am going to start a Zeta magazine aimed at those that lost heavily.

    Billionaires to Sillionaires are welcome.

  83. Absolutely NO! Hedge funds must be taxed at 40%.

  84. I have one simple question to asks. Did the nominal "paper" billions which these hedge fund managers extorted from our financial markets add "one productive job" to our economy or increase the "real wealth" of America? I think not!

    Let the recent government actions (bailouts) to "manipulate" our financial markets and the grotesque "insider" profits by hedge funds and certain other financial institutions (Goldman) finally demonstrate to the American people just how thoroughly "corrupt" and "self-serving" our government officials and financial markets have become!

  85. Regardless how they are taxed, everyone is outraged and for what reason? Because you're just an ordinary taxpayer who works hard for your money, you think you're better than the employees at financial services firms? Get off your high horse, these people paid more in taxes this year than you will in a lifetime. If you want to get technical about taxpayer money going to support these firms, then think about who truly is paying the most in taxes, both income, consumption, and otherwise.

  86. Interesting last night this story was front page, now its buried in the business section where the majority of its readers are the very same people. Again, I refer to John Stewart who jumped on these stories. These hedge funds engage in dubious and likely criminal practices to make this money. They play games with the stock market manipulating its prices and then sell or buy against it. Short selling should be illegal. PERIOD. This is the whole problem of the shadow banking system. Betting against people's investments (housing) helped cause it to crash. To pretend they were just making wise investments for their investors is an absolute insult to my intelligence. And lastly, how are Bernie Madoff's investors happy? Are they the ones that figured out the scheme and got in on top and then out with others money? Likely!

  87. Since when is it a terrible thing to make money? Pardon me if I am wrong, but isn't it the American Dream to have a house, family, friends, and make some loot? There are a lot of smart people in finance - and some of them make money. There are a lot of idiots in finance as well - and some of them make money as well. Some are just lucky. Lots of folks - smart and stupid - lost money over the past few years. It is called cyclicality and it happens!!!! Markets/economies/sales/etc. don't always go UP. Did I wake up and land in Russia or something? What has happened to capitalism in this country? I am seriously scared. Good grief people. Take boxing lessons or something.

  88. What does one do, exactly, with a billion dollars? Can one person even spend that much money in a lifetime? If one's use of resources, be they monetary or otherwise, is at all a reflection of one's sense of ethics or spirituality, it would be difficult for me to imagine how anyone could possess so much money (as this article suggests some people do) and not feel obligated to give almost all of it away without any desire to receive anything in return. We should not have to tax these people. Ideally, they would realize the value of generosity and compassion and conclude that the best use of such wealth is to share it as widely as possible.