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Billions What have I done wrong, really, except make money; succeed? All these rules and regulations: arbitrary. Chalked up by politicians for their own ends. And these fines you’re always going after: where do they go? The poor? No. The treasury; the government. It’s taxation by other means. […] I make the system run. I have contributed hundreds of millions of dollars in taxes and philanthropy. I employ hundreds of people directly. Thousands indirectly. What do you do? Nothing besides suck from the municipality; feed off of it. And in exchange what? Keep order? You’re a traffic cop hiding in Federal robes.
So says hedge fund manager Bobby Axelrod to U.S attorney Chuck Rhodes in the finale of the TV series Billions. It is worth a look. The government officials end up looking more like the bad guys than the business people.
Rhodes’ response: “You’re sure to become president of the libertarian club of Danbury Federal prison, ’cause no matter what you say, that’s where you’re ending up.”
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The attack on “Hedge Funds” (pushed by Max Keiser of Mr Putin’s RT – and the rest of the usual suspects) is deliberately absurd.
Absurd – because all a “Hedge Fund” is an investment outfit.
Someone says “pay me to invest your money for you – because I can do a better job than you can”.
Now they may be (and often are) talking nonsense – but this is no way destroys the world (or whatever).
“Deliberately” absurd as no one really believes the charges against “Hedge Funds” (that they are responsible for State debts – or for me being bald).
People pretend to believe the charges as a paper thin cover for their actual position.
The actual position is simple.
“We hate the rich”.
As the international economy collapses there is going to be a lot more “we hate the rich” – and the disguise (the pretence that this is about crimes) will get thinner and thinner.
In fact these days, lots of the fines don’t finish up with the Treasury lightening by a smidgeon the taxpayers’ load. No, they do “deals” whereby the victim agrees to pay various community groups, aka political clients of the Democratic Party, serious amounts of money. It’s just a shakedown.
NB the technical legal term for these “deals” is “demanding money with menaces.”
It is not just the financial people. In the environmental realm, the US government sometimes actualy encourages activist groups to sue, because they could not otherwise take the actions that the activists want – it would be contrary to law. But if you can get a judge to say that the govt has to do it, because of his ground-breaking interpretation of the law, then you get to implement policy that has not been approved by the Congress, AND you get to feed more public money to the activist groups to ensure that they continue to generate these issues.
It is really sick.
I very much enjoyed “Billions” and am looking forward to the second season. Excellent acting and writing. I’ve never really been in that world (I think others here are more involved in it than I), but I’ve been close enough to it that for me it has the ring of truth. And Rob is right: the government (US Attorney, Justice Department, SEC) came across as the villain, especially as the season progressed.
Axelrod’s speech is destined to join Larry the Liquidator’s speech at the shareholders meeting in “Other People’s Money” (also worth watching) as one of the best pop culture defenses of free markets.
Paul,
I think the key feature of Hedge Funds that gets people agitated is that they’re permitted to participate in (and offer to their investors) investments that governments believe are too risky for individuals like you and I to invest in, which are usually characterized by short positions and leverage.
To many, there seems to be some fundamental moral difference between making an investment that anticipates the increase in value of an investment, and one that anticipates the decline in value of the same. The first is seen as ‘investment’, the second is seen as ‘gambling’. Heaven forbid you combine the two as a risk hedge. It’s fiscal blasphemy or something.
Inasmuch as a governments might have some role to play in protecting the man in the street from extortion and menaces, it really has little to offer in saving people from their own poor investment choices.
His real crime was to succeed. As a French philosopher pointed out, a successful inventor shames all those who did not think of the invention, making them feel small. So with owners of riches, like this billionaire. Shame, shame shame!!!
So says hedge fund manager Bobby Axelrod to U.S attorney Chuck Rhodes in the finale of the TV series Billions. It is worth a look. The government officials end up looking more like the bad guys than the business people.
I’ve been enjoying this series and those were exactly my thoughts when I saw that scene: finally we have a show where capitalists as the good guys and not the pantomime villains. I have to say, I enjoyed it a lot more than House of Cards.
Billions is a great show – great writing giving powerhouse actors like Damian Lewis and Paul Giammati something to really get their teeth into.
I think the other thing that Billions focuses on is how capricious the focus of government law agencies is – Chuck Rhodes is obsessed with Bobby Axelrod purely down to personal animus. Tell me that doesn’t ring true as well… (and the reverse – See Hillary’s email server for details)
People seem to think that hedge funds make lots and lots of money by ripping off society. In fact most of them produce middling returns similar to what you might get from a mix of ‘normal’ equities, bonds and property. The USP of hedge funds, they claim, is superior ‘risk adjusted returns’. Whenever you see funds produce super high returns, odds are that the people on the losing end are other hedge funds, banks, or governments. For example Paulson and Co made super high returns by shorting distressed mortgage backed securities during the financial crisis. The losers would have been various banks mainly. Soros famously bet against the UK government in 1992 and made a killing. Frankly in these situations I think the hedge funds were the ‘good guys’. If somebody says ‘up is down’ and the hedge fund guys go on to show them that ‘no, gravity goes in this direction’ then all credit to them.
All that said I do not like the hedge fund culture. I have acquaintances in that world and remuneration is highly disproportionate to value added (as discussed frequently low,zero or negative). A friend is a senior sales guy and his annual salary is in 7 figures. However, it is the fault of clients for tolerating their high fees; it doesn’t affect society.
The view that shorting things is wicked because it damages society is not merely wrong, but backwards. Shorting is very valuable to society because it limits wasted investment in real assets. There are x real widgets. This is x longs and 0 shorts. If someone puts on a short, ie sells what he doesn’t have (for future delivery) we now have x+1 longs (1 of which exists only on paper) and 1 short (which exists only on paper.) The investment of real capital in real assets hasn’t changed. If the shorter is wrong and there really is demand for more widgets, then the shorter will lose and the successful paper long will be able to invest capital in a new real widget. The demand for extra real widgets turns out to be solid, we get an extra real widget, but just a bit later than we would otherwise have done. But if the shorter is right, then he wins, the paper long loses and no extra real widget gets built. Real capital is not wasted on a new widget for which – it turns out – demand was ephemeral.
So the paper game of shorts and longs allows the satisfaction of investor demands for more widgets without actually wasting capital on widget building. The price is a delay in the delivery of real widgets when there actually is real demand. None of this prevents long investors going out and building new real widgets if they prefer. It just allows an extra possibility – buying a paper widget. And sometimes – roughly half the time in fact – that will prevent real capital being wasted.
So Paulson’s mortgage / housing shorts actually REDUCED the damage from the boom and bust in houses. Less capital was spent on real houses, less glut was created, because of Paulson’s sterling efforts to build paper houses. By shorting.
I haven’t seen it; I watch far less TV than I used to. The last thing I saw was the BBC adaption of Joseph Conrad’s The Secret Agent. It’s good.
Lee Moore, what an excellent explanation. I thank you.
As stated above, most hedge funds produce little value for investors compared with an index tracker, and those that do perform well are rarely consistent. Markets are just too complex.
At some point however, this complexity is going to be mastered by computer power and AI, and that little bit of information or knowledge that gives some investors an edge today, will be available to almost everyone instantly.
In a world of almost perfect and instant knowledge, the professional investor will go the way of the buggy whip maker in the age of Ford assembly lines.
They will probably not die out entirely, but rather adapt. And knowledge will *never* be ‘perfect’ đ
Lee Moore,
Not sure that oversupply of houses was the problem in 2008 – wasn’t it oversupply of credit for houses? But your point stands up with that – speculation reduced the oversupply of credit, which was a good thing.
Indeed, more elasticity in financial markets in general would be a good thing – regulation weights heavily here.
I recommend a stroll round Ireland, Watchman. The credit wave engulfed those emerald shores too and there are still plenty of ghost estates with houses no one has ever lived in. There was a tragic lack of O’Paulsons.
Fair enough – I was thinking of the US and the UK, but you’re right there (and credit to unsuitable buyers or unsuitable sellers works the same way).
Wonder if the Irish would be interested in a deal with the UK – we buy those houses cheap and send our council house waiting lists over there to fill them…
“In fact these days, lots of the fines donât finish up with the Treasury lightening by a smidgeon the taxpayersâ load. No, they do âdealsâ whereby the victim agrees to pay various community groups, aka political clients of the Democratic Party, serious amounts of money. Itâs just a shakedown.”
Lee Moore says what needs to be said about “fines” – extortion in fact.
This is another thing journalists auto-censure.
Lee Moore is certainly correct in his explanation, but he doesn’t even mention the primary reason that “shorting” and other forms of speculation are essential to a functioning, liquid market: it provides a mechanism for legitimate hedging. A baker wants to protect himself against an increase in the price of flour; a farmer wants to protect himself against a decline in the price of wheat. Both can make a reasonable profit at current price levels, and each is willing to forgo the possibility of an outsized profit in exchange for protection against the risk of no profit at all. It is the speculator who interposes himself in between those two, making a market and, in the process, assuming the risk. Not all hedge funds are in that category, of course, but you can’t rationally isolate “acceptable” forms of speculation from “unacceptable” ones. Without speculators markets would frequently seize up due to lack of liquidity.
Incidentally, Johnnydub’s comment about Billions highlighting the capricious nature of law enforcement is a good one. In retrospect, I realize that the series set up Chuck Rhodes to be someone having, if not overtly questionable morality, at least (shall we say) unorthodox sexual tastes, which helps set the stage for what follows. But in any event he is shown to be severely ethically compromised as the series progresses, and yet he keeps on like Captain Ahab in search of Moby Dick. In the end it will destroy him, but I won’t have the same degree of sympathy for that character as I do for Ahab. (But Paul Giammati is excellent in that role!)
Of course credit bubble banking is awful – and credit bubble Central Banking (“low interest rates” due lending via book keeping tricks not Real Savings) is worse.
And many of the people involved in banking are vile – such as the head of Lloyds blaming British independence for his job cuts. A previous head of Lloyds deliberately bankrupted his own bank (wiping out shareholders) by taking over another bank he KNEW was bankrupt – Sir Victor (or whatever the piece of excrement’s name was) did this as a favour to his “friend” Prime Minister Gordon Brown (the vile always have “friends” of this sort). In a better age the former head of Lloyds would have been “called out” by a ruined shareholder – and had to fight for his life with either sword or pistol.
Or he would not have been able to walk on a public street again in his life – without passers by spitting upon him.
But this is nothing to do with Hedge Funds – any more that local and national governments borrowing money is the fault of “Hedge Funds” (it is the fault of wild GOVERNMENT SPENDING).
Nor does the left object to low interest rates anyway.
In fact they love Credit Bubble finance.
Paul Marks,
Watching bits of the second day of the DNC I was a bit bewildered but not shocked by the SOOOO overt sentiments shared openly.
1. The simply overt sexism and racism.
2. The hatred of the rich.
3. The transparency of the CONSTANT lies.
4. That the constant lies were constant projections of themselves. That is, they themselves are the rich, the sexist, the racists, everything they accuse their enemies of being.
5. And the amazing lack of self awareness about the above and their self-congratulatory nature.