Lie, Cheat and Steal
Is man inherently evil? Maybe that's too big a question.
Are members of the securities industry inherently evil? Will they do or say absolutely anything to get their hands on your money?
Obviously, it would be unfair to make such a blanket characterization, but sometimes you really have to wonder.
Consider these items:
Item #1: A study by two finance professors estimated that 10% of the returns of hedge funds reported to a standard database were "distorted." The authors concluded that "[T]his suggests that misreporting returns is a widespread phenomenon."
Translation: The practice of lying about hedge fund returns to make them appear more attractive than they are is a common practice.
Item #2: Another study concludes the hedge fund industry "is vulnerable to entry by managers who have no particular skill, but whose lack of skill is difficult to detect based solely on their track records. In other words, the hedge fund industry has a potential lemons problem."
Translation: A con artist can easily set up a hedge fund, make it look like he is adding "alpha," reap the rewards of huge fees and live happily ever after when the fund blows up.
Item #3: A third study found that "incomplete and inaccurate disclosure of important information is not uncommon among a sample of funds selected for research by clients of a major due diligence firm."
Translation: Lies, lies and more lies.
Item #4: Billionaire Raj Rajaratnam and others were arrested on October 16, 2009 and charged with using inside information that permitted the $7 billion hedge fund at Galleon Group in which he was a partner to reap $12.7 million in profits. These charges are allegations only and have yet to be proven at trial.
Translation: This item is the least surprising. The only way to get an edge in an efficient market is to illegally use inside information.
The bottom line transcends "buyer beware." This is an industry where the end justifies the means. The only expertise they have is the ability to transfer your wealth to their pocket.
Not every sheep must be shorn. You should be the exception.
Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
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I'm as poor as Job's turkey but I'm a little rotten myself anyway. Is there any hope for me, Mr. Solin?
In the face of the available evidence, I think the blanket characterization is fully justified. Those who are not actively corrupt tolerate and abet those who are.
What applies to hedge funds applies to mutual funds, money markets and stock markets as well. They have all become corrupted; a scam for market insiders to fleece the "small investor".
Not everyone is evil, but those who are evil will take advantage of other people if they are allowed to do it. That is why we need strong regulation of the financial system. If there is no regulation, evil people will definitely take advantage of it.
Well, what are we to expect?
The original principle of the hedge fund is to attempt to both gain significant returns and reduce risk, an economic impossibility - There ain't no such thing as a Free Lunch. So you know right off the bat something has to be going on.
Of course if you discount the utter failures hedge funds pull ahead of others - you're discounting the failures! And even then, as this very article points out, hedge fund returns are overreported - they claim to make more than they actually do to make hedge funds look better than they actually are.
That's where you pay for the hedge fund's free lunch - in having to deal with individuals without integrity or respect of the law, dedicated only to making a profit, and not necessarily yours.
This is at the heart of conservatism. They believe that events (The Civil War) and laws (The Civil Rights Act) has created a sort of parallel universe where much of thier material wealth has been "stolen" from them (even though the slaves helped build this country) and they "have" to lie, cheat and steal to win on such an unlevel playing field. And I have seen them say this that the most important thing is "We have to stick together". There are remnants of a confederate heart that beats inside the chest of every southern conervative believe you me. "You made me this way. You made me do it." BALONEY!!!!! You did it yourself and you can take your blame and assign it else where cause I'm sick of hearing about and I sure am sick of carrying it around..
These are ancient, ancient crimes. The very simple fact of the matter is that there ARE people out there, in the very nicest of business suits, who are devoid of any substance in their hearts. They are sociopaths. And as the good book says, "a man is a slave to whatever masters him."
Well, we see the same now with the speculators on oil. Not only did they lie and cheat us the last few years but they are heading there again. Nothing makes any sense anymore but oil is attracting those speculators like vultures on a carcass.
Is today's stock market divorced from economic reality? Probably. It is a certainty that oil is. We know that because those in the market are still putting out the same tired and incorrect logic that they used
successfully last year to push oil to $147 a barrel while demand was plummeting. And no one is lifting a finger to correct the situation. Wall Street is preventing us getting out of this recession. That is the thanks we get for bailing them out.
"A con artist can easily set up a hedge fund, make it look like he is adding "alpha," reap the rewards of huge fees and live happily ever after when the fund blows up."
The hedge fund manager still has to raise funds. If a person gives a manager with no experience or verifiable track record a large amount of their funds, then said person is knowingly taking that added risk.
We also have to put things into perspective here. Despite some bad apples, including some horribly bad apples, in the hedge fund industry, such funds have still done tremendously better during the past 10 years than mutual funds or index funds. A large number of funds were mostly out of the equity market or short during last falls downturn, while many mutual funds remained almost fully investment for the entire fall, and index funds took the full brunt of the fall.
"The only way to get an edge in an efficient market is to illegally use inside information."
The best way to get an edge in an inefficient market is to also illegally use inside information. That is because it is usually impossible to tell the difference between an efficient market and an inefficient market. In theory inefficient markets should produce either more or greater market distortions, or both. To make a profit in an inefficient market, you not only need to determine the underlying market fundamentals, but also factor in the distortions, which is almost impossible. In order to overcome this difficulty, the best approach is to get insider information.
"Are members of the securities industry inherently evil? Will they do or say absolutely anything to get their hands on your money? Obviously, it would be unfair to make such a blanket characterization, but sometimes you really have to wonder."
Why is that unfair? We make the same assumptions about terrorists, Syrians, Iranians and others all the time. Just read the press. Of course the whole system is unfair but as long as we are doing it to some groups why not generalize it to the banks? The people that have been trained to hate certain groups by the media and others would take to it like a duck to water.
Only the most successful members of the securities industry are evil. The ones that are not evil never make it.
The whole purpose of the securities industry is to sell, sell, sell and make commissions, commissions, commissions. The most financially successful salespersons feel no more responsibility to their customers than a door to door vacuum cleaner salesman. They sell what makes them money, because if they don't, they won't have a job for long.
Their customers somehow believe the advertisement hype that they are in business to sell them the best investment for their situation. All the analysis and sales materials are designed to come to a predetermined result, that you should invest your money with them.
Well, unless you can buy your way into heaven, don't expect to see these people there.
It's all a results of the "I'll do what I want until they stop me" philosophy that's been part of this culture for 30 years.
There's little sense of community, honesty or responsibility anymore. I remember walking into a client's office and there was a HUGE poster on the wall. It read "He who dies with the most toys wins!"
A sad commentary on the business and the man.
Somehow Reagan convinced America that business was good (at least for him. His friend bought him a ranch, remember) and regulation bad. For someone who was once president of SAG he became a union buster. And, America cheered. Not that unions don't have issues and some needed bbusting, but the idea that we could "trust" those with money and power to do the right thing by all of was dispelled 2500 years ago during the golden age of Greek tragedy.
If we don't wake up and wise up, I fear the worst is just beginning.
Some of them are definitely functional sociopaths, or that is that are missing internal dynamics like; empathic concern, and conscience.
It sure seems like the people at the top of the finance market were specifically chosen for their roles because they were sociopathic...
I like the term "functional sociopath", I read an article that called Steve Jobs a productive narcissist.
Perhaps it has something to do with the a lack of emphasis on Ethics in higher education.
I don't like the terms good and evil because of their religious baggage. We are just animals and we behaviors that are pretty predictable. Complex societies provide niches for sociopaths to survive and prosper. But sociopaths will always destroy the system that supports them because they are mentally deficient.
I ain't no shrink, but sociopaths deficiency seems to have something to do with not accessing their frontal lobes. Maybe, maybe not, but I will put that out there to start a discussion.
Good and Evil have no religious baggage. Most moral codes STARTED from religion, true, but that doesn't mean that it's necessarily bad. The only proper way to define Good and Evil is in terms of people. In other words, if what you're doing hurts others, then it's Evil. If what you're doing helps others, then it's Good. If what you're doing neither helps nor harms others, then it's neutral.
To say someone is evil is a judgement and a label. All thought stops there. To call someone a sociopath is a diagnosis that invites further scrutiny and a search for a cure or a way to neutralize their destructive influence.
Good. That which is conductive to the continued health of the society as a whole as well as to the individuals who make up that society. If it causes no harm to society, and only minor harm to the individual (i.e. most consensual crimes) it can be considered Good.
Evil. That which is destructive to Society and to individuals within that society. No matter how beneficial it may be for a single or small group of individuals, if it harms the larger majority and society at large, it is Evil.
Unrestrained liberty for the few to harm the majority cannot be sustained. Society is a balance between individual liberty and Society's liberty. Some liberties for both must be given up for the good of the whole.
Your right to swing your fist stops at my nose. Your right to unlimited profit stops when you begin to exploit my money. Your right to get your head above water stops when you try to shove mine under.
It's liberty and justice for all, not he who has the most toys wins.
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