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Billion-Dollar Paydays

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The New York Times reports that hedge fund managers are making “ugly” earnings in excess of $3 billion a year. “We are clearly in a period of excess, and we have to swing back to the middle or the center cannot hold,” William H. Gross, the chief investment officer of the bond fund Pimco, told NYT.

  • John Paulson of Paulson & Company made $3.7 billion last year by “betting against certain mortgages and complex financial products that held them.” But he’s not the only winner. Paulson reaped the benefits of the mortgage crisis. “By the end of 2007 sat atop $28 billion in assets, up from $6 billion 12 months earlier.”
  • Speculator George Soros lept out of retirement last year to earn $2.9 billion, with a return of 32 percent.
  • James Simons, a mathematician and former Defense Department code breaker who uses complex computer models to trade, earned $2.8 billion last year with a 73 percent return.
  • Betting against the mortgage market, Philip Falcone pulled in returns of 117 percent after fees in 2007 and made $1.7 billion. He now manages $18 billion.
  • Combined, the top 50 hedge fund managers last year earned $29 billion.
  • With a combined $2 trillion under management, the hedge fund industry is coming off its richest year ever at the same time as Wall Street Banks are suffering major hits.
  • “To make it into the top 25 of Alpha’s list, the industry standard for hedge fund pay, a manager needed to earn at least $360 million last year, more than 18 times the amount in 2002. The median American family, by contrast, earned $60,500 last year.”

As “a very gigantic version of Las Vegas,” there were some big winners who have since receded into hedge fund obscurity.

  • With an equity portfolio in Sears and a major holding in Citigroup, Edward Lampert’s fund fell 27 percent last year.

“Since 1913, the United States witnessed only one other year of such unequal wealth distribution – 1928, the year before the stock market crashed, according to Jared Bernstein, a senior fellow at the Economic Policy Institute in Washington. Such inequality is likely to impede an economic recovery, he said.”

“Their unprecedented and growing affluence underscores the gaping inequality between the millions of Americans facing stagnating wages and rising home foreclosures and an agile financial elite that seems to thrive in good times and bad,” the Times article reads.

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