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Taibbi writes: "Someday we'll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc."

Wall Street cashes in on others ideas, like the creative people at Apple. (photo: Business Week)
Wall Street cashes in on others ideas, like the creative people at Apple. (photo: Business Week)

More Evidence Wall Street Is Overpaid

By Matt Taibbi, Rolling Stone

23 August 12


e'll be getting to this more next week when we do our piece on Mitt Romney and the private equity business, but one of the most frequently-overlooked problems of the financialization age is that a lot of our brilliant financial engineers are actually pretty damned average, when it comes to playing the market.

There's a great little piece at Zero Hedge about how hedge funds are having a terrible year (for the second straight year), with only 11% of all funds outperforming the Standard and Poor's 500, the basic stock index.

Here's Tyler's take on the panic in the hedge fund industry:

This is the worst yearly aggregate S&P 500 underperformance by the hedge fund industry in history, and also explains why the smooth sailing in the S&P500 belies the fact that nearly every single hedge fund manager (and at least 89% of all) is currently panicking like never before knowing very well there are only 4 more months left to beat the S&P or face terminal redemption requests. And with $1.2 trillion in gross equity positions, the day of redemption reckoning at the end of the year (and just after September 30 for that matter as well) could be the most painful yet. it also explains why, just like every other quarter in which career risk is at all time highs, HFs are dumping everything not nailed down and buying up AAPL, which as of June 30 was held by an all time high 230 hedge funds (more on that later).

Translating that into English, all those super-rich people who turned to hedge funds with their millions in the hopes that bunches of Whiz-Kids from Wharton and Harvard and Yale would find unseen and wildly creative investment ideas to fatten their fortunes - all those rich clients are actually finding out now that those same Whiz Kids are buying Apple just like the rest of us. Hey, it has to be a good stock, right? Everyone has an iPhone now.

Jesus. After all that craziness in the last decade or so, after MF and the London Whale and all that nuttiness, this is what it comes down to? These guys are buying Apple? Couldn't we have just started off doing that and saved ourselves all that trouble?

As is apparently also the case with Mitt Romney's PE business, which analysts have found often don't do much better than average if at all, the data shows more and more that we'd all be better off, and there'd be a lot less mischief, if the world's biggest and more powerful investment specialists just dumped money into humdrum baskets of stocks instead of racking their enormous brains to come up with exotic new trades.

Someday we'll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc. Because it seems like our best minds kind of suck at investing. your social media marketing partner


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+11 # Willman 2012-08-23 20:53
All of the traders make money on the "churn". They chum the waters for likely marks like a carnival barker and the seven headed snake, IE recent Farcebook debacle.
If the average investor just bought and held they would be better off. IE Berkshire Hathaway.
Anytime a downturn or much worse the panic sets in and the sell orders go out. Most buy high and sell low.
+6 # MidwestTom 2012-08-23 22:02
The big banks on Wall Street have prevented the writting of the financial reform legislation to date, no changes. Jon Corzine should be in jail, but he being entertained in Washington DC. IN the court case following the collapse of Chicago based Sentinel Securities we learned last year that securities houses can play with money and securities that belong to their clients and possibly lose with no fear of punishment. Take in an Ann Barnhardt lecture on Youtube, and you will stop sending money to Wall Street.
+2 # cabotool 2012-08-24 08:51
I have a proposal to get us out of the terrible mess that we are in with most of the goods sold in America, being made in China:
The major retailers in America... those with sufficient buying power to have clout in China... start a product line where their premium product has a suffix number of the % of the product made in USA. For example it could be "Kirkland 20". This would indicate that the product was 20% made in the USA. I would be willing to pay an extra few dollars for a product that had USA content. A few of the same containers that bring product to the USA could take the "made in USA" parts back to China where they would be incorporated into the product. I believe that with such a system that we can increase the USA made content of products sold in the USA. I believe that such a system could revitalize the American manufacturing base.
+4 # SpyderJan 2012-08-24 12:28
Interesting idea cabotool, but there are some flaws. American retailers would fight that labeling tooth and K Street. China has a surplus of goods now that they can't unload, so would be unlikely to take our goods in exchange for theirs, and after all, what is going to happen when everyone has an IPhone already? When the consumers pockets are empty, it really doesn't matter what the label says, the goods will rot on the shelves.
+3 # Joe Bob 2012-08-24 11:49
What ever happened to the Old Republican guilt trip of "PATRIOTIC" ?
It got us into a couple of wars and shut up the opposition, gee maybe if complete or partial manufacturing in the US would be considered Patriotic, the Corp Greed machine could be shamed into doing it.
Maybe Patriotic only works when the Repubs and their owned Media do it.
+1 # Virginia 2012-08-24 22:23
"Someday we'll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc."

Someday - a long time from now.

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