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Wall Street Excess: Government Sponsored

Tuesday, December 13th, 2011
Posted in Uncategorized by Joel Gross

You hear about the multimillion dollar annual bonuses given to Wall Street employees?

That’s your money.

The most popular form of paying private equity firms is a concept called “2 and 20″. What it means is that these firms get 2% of the total investment each year AND 20% of the profits. No self respecting private business owner or manager would ever agree to such obscene terms.

So who does pay that? Who makes the 1% massively richer?

That honor goes to public pension fund managers, investing enormous amounts of teachers, firefighters and other public employees’ retirement funds.

Most of these investments have severely underperformed and lost billions of dollars. So why do pension fund managers invest so poorly? Because they don’t care. Its not their money. And after a few years as pension fund manager, the same firms they pay now will give them extremely well paying jobs. Its a rotten good old boys network corruptly siphoning off public retirement funds.

Do I blame the players of this game? Do I hate the bankers?

No.

I hate the system. Anytime a government system like this is set up, someone smart will abuse it.  The fact that public employees are forced to contribute their income to a pension fund plan everyone knows wont be able to pay them is wrong. Having politicians who suck at economics, but know how to take care of thrmselves and their buddies, operate pension funds is wrong.

The whole system needs to be privatized. Introduce an element of honest competition and you wont have these problems at the scale we for now. You will have an occasional outliers like Madoff, but our entire current system of government (social security, Medicare, etc) is a massive Ponzi fraud. If you let teachers decide where to invest their own retirements I guarantee you most of it will not end up in a 2 &20 scheme.