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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 1, 2010 at 10:20 AM

Hedge funds: Betting on recovery, or being welfare queens?

It’s not just the big banks that are doing very well. So is the unregulated shadow banking system, including hedge funds. According to the New York Times, the pay of the top fund managers made a staggering recovery last year. One made $4 billion betting on the recovery of…the financial sector. (No, this is not an April Fool joke).

How to take this? “We bet on the country’s revival,” the manager, David Tepper, said. Well, not really. He bet the assets of his elite clients on the fact that American taxpayers would be risking their living standards for years to come in order to rescue the bad bets and swindles of the banking sector. (And this is not a partisan concern: No. 2 on the list was George Soros, big backer of the Dems).

The problem is that it’s difficult to know how these powerful players are using their money to actually encourage real recovery, or just trading bets and benefiting from the federal bailout (e.g., being corporate welfare queens, or the bankers to them). Hedge funds are famous for buying and merging companies, encouraging offshoring, etc., all of which destroy jobs. Meanwhile, they’re barely overseen by regulators and played a significant role in the panic.

In any event, I’m sure the millions of unemployed and underemployed Americans, the people whose wages have stagnated for years and worry about job losses and foreclosures, wish them well.

The Back Story: Calculated Risk serves up this chart on construction spending, showing how far the economy must yet travel. Whatever the monthly reports may say, residential building activity is where it stood back in the early 1990s. Non-residential may have yet further to fall; it peaked later and the commercial real-estate crisis has not yet fully detonated.

This situation has more gravity considering how much the construction sector stepped in to fill the void left by off-shoring of manufacturing jobs. But high leverage and high inventory make it unlikely to come back as before. What’s Plan B?

Today’s Econ Haiku:

Headquarters matter

Fireworks die with a whimper

Instead of a bang

Comments | More in Bailout, Banking, Real estate

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