Some hedge fund managers still getting really rich. Is that a problem?

Alpha magazine’s annual list of the 25 highest-paid hedgies is out, and confirms the fascinating truth that there still are a lot of staggeringly high-paid hedgies out there—even if fewer than the year before. Atop the list, at an estimated $2.5 billion, is Jim Simons, who was one of the highest-paid hedgies before all this craziness began, which would seem to mean that he and all his fellow Ph.Ds out on Long Island truly do have some idea of what they’re doing. (Either that or they’re all making it up like Bernie Madoff, but somebody’s done some due diligence on that, right? Right!?!) Same with George Soros, who you would have thought was too busy writing op-ed pieces to make $1.1 billion last year.

I’m very curious whether these kind of paychecks are ever going to generate a political backlash. So far congressional outrage has been focused solely on bonuses (not even total paychecks) at firms that received government aid. When Simons, list No. 2 John Paulson ($2 billion) and a few other hedge fund managers appeared before Henry Waxman’s House Committee on Oversight and Government Reform (which has since become Edolphus Towns’ House Committee on Oversight and Government Reform), in November, it was striking how little guff they had to take.

In the 1930s, it was all rich people who took it on the political chin. The top income tax rate rose to 79% (it passed 90% in the 1940s). Huey Long was calling for a cap on incomes of $1 million a year ($15 million in today’s dollars). For all the nonsense from the right about a war on the rich, what’s come out of the White House and Capitol Hill so far this crisis has nothing on the rhetoric, or the lawmaking, of the 1930s.

So I’m wondering: Is this because we’ve all become more economically sophisticated, and appreciate the important role that risk-taking financial institutions play in our modern economy? Or it just that things haven’t gotten bad enough for us to get really mad yet?

By the way, Alpha is coming out with an even more interesting list tomorrow: The eight-biggest hedge fund money losers of 2008.

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

tc125231

Well, I would sign on pretty quickly to the idea that they should not be taxed at capital gains rates –a ridiculous loophole preserved by large campaign contributions.

What do you think? Am I now a member of the unwashed enraged peasantry, waving a pitchfork by torchlight?
Justin Fox

@tc125231: The cap gains treatment is a scam–Simons agreed at that House hearing mentioned above. But it’s no skin off his nose: He never holds onto to anything for the 12 months needed to get long-term capital gains treatment. That’s true of lots of hedge funds. It’s really the private equity guys who get the full benefit of that loophole.
curmudgeon57

You know, you either accept it at face value, or you spend your life in anger and misery about the injustice. These incomes simply represent a hole in the space-time continuum, and have nothing to do with me or real life in general.
bryanfromhouston

Not if your running a hedge fund!
umeshgeeta

Why does Justin Fox want to assume Congress and those ‘Jacobians at the Gate’ (according to Andrew Sullivan) are dumb enough in ignoring the fact that none of this Hedge Fund Billionaires (Simons, Soros, Paulson, etc.) ever came to Congress with their hats in hand? Why, why so obvious difference between Pandit from Citibank and these Hedgies is ignored?

People are not dumb (despite Jake’s impressive resignation letter in NYT). They are devastated because Obama Admin. and Congress first gave money to these bankers, then just put ‘show’ when bonuses were paid without doing anything consequential and now again want to ‘vow’ these bankers with even more subsidies via PPIP! Joe Klein is also wrong to say that Media ‘hyped’ this bonus issue. Bottom line – people are not fool to raise this issue and are smart enough to ignore Hedge fund owner’s income.

If your question is what if one of these Hedge Funds blow bringing down American Economy? That is why Geithner is asking for more authority to Treasury & FDIC (rightly it should not be with Fed). That should address the issue of controlling negative consequences of these ‘money making machines’ if they have taken lot of risk while endangering stability of World Finance & Economy.