The Common Good

COMMENTARY: Free Market Compensation or a Rigged System?

In a marketplace unfettered by ethical restraint, a sense of duty, concern for others, or even basic shame, 25 hedge fund managers gave themselves a 50 percent pay boost in 2013.

Tom Ehrich is a writer, church consultant and Episcopal priest based in New York. Photo courtesy of Tom Ehrich/RNS

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Never mind that hedge funds’ performance, on average, tanked for the fifth consecutive year.

These 25 men wanted big bucks, so they took them: a total of $21 billion. All for managing wealth that someone else created and, except for a few, not managing it particularly well.

The top earner paid himself $3.5 billion for 2013.

These 25 hedge funders’ haul exceeds the entire year’s payroll of more than 200,000 public school teachers in New York City. And those teachers are actually doing some good for society.

This is the way capitalism works, said a defender in Chicago. No, it’s the way a rigged system works. These 25 men took few meaningful risks, developed no new products, and didn’t fulfill any hopes that “trickle-down” wealth would create jobs.

A self-described “at-home mom,” commenting on the report, said she had earned a 13.2 percent return on her portfolio — versus 9.1 percent by the hedge fund industry — and did “hardly anything.”

Even though stock prices soared 32 percent in 2013, one of the top-earning hedge fund chiefs managed to return only 3.5 percent to 5.3 percent to his clients, and yet he paid himself $600 million.

Wall Street money managers earn close to $400 million managing pension funds for New York City teachers. They return only 8 percent in investment gain, which is better than sticking money under the mattress, but far short of actual market performance.

This isn’t free-market capitalism. This is a closed system, where friends look out for friends and scream “socialism!” when anyone questions their system. In a free market, compensation would be tied to results, not to accumulated wealth. In an ethical system, compensation would be linked to value. Instead, we see no linkage to results or to value; it’s just insiders taking what they can. It’s a polite form of thuggery.

Their wealth, meanwhile, tends to be taken out of the economy, where it might at least pass around and benefit others. Instead, they invest in real estate, art, expensive cars, and Gilded Age lifestyles, which benefit hardly anyone.

“Stop whining!” say their defenders. The rising chorus of dismay at income inequality isn’t whining. It isn’t envy. It’s genuine concern for the welfare of the society we all share. The rapacious appetites of the few are preventing action to bring pollution under control. They are exposing financial institutions to insane risks. They are starving public schools of funds. They are bidding urban real estate beyond reach. They are preventing actual growth in jobs and wages and are trying to prevent improvements in health care.

Like thugs in all eras, they care nothing for who gets hurt. Hedge funds have $2.7 trillion under their control, and that’s all that matters. In this closed system, it doesn’t matter that money is being squandered both by subpar yields caused by mediocre management and by excessive fees.

When you bet with other people’s money and expect the government to subsidize your losses, who cares that a New York amateur distracted by child care did better without really trying?

Tom Ehrich is a writer, church consultant and Episcopal priest based in New York. He is the author of “Just Wondering, Jesus” and founder of the Church Wellness Project. His website is www.morningwalkmedia.com . Follow Tom on Twitter @tomehrichVia RNS.

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