Here from the pen of a Wall Street insider.
Hedge Funds Have Been A Scam For The Past Twenty Years
James Altucher, Formula Capital | Sep. 3, 2010, 8:55 AM
Mostly now-illegal or dubious activities are how hedge funds have made almost all of their money in the past 20 years.
In the mid to late 90s - investing in tech stocks is the only strategy that worked. So-called "sophisticated" funds like LTCM or Victor Niederhoffer's fund worked for awhile but ultimately failed miserably (in part, because vulture funds picked at their weaknesses until they imploded).
Also, funds that "played the calendar" worked. What is playing the calendar? If you knew XYZ Bank was going to IPO ABC.com you would trade back and forth 10s of thousands of shares, generating commissions for the bank in the month before the IPO. Then, as a token of the bank's gratitude (or the broker that made the money on the commissions), you would get a slug of 100k shares at IPO time. It would open 50 points higher, you'd sell. REPEAT. Many people made 100s of millions of dollars on this and retired to far-flung locations never to be heard from again. Tech stocks are dead now and playing the calendar is somewhat illegal. Oh, another strategy (now illegal) that worked in the 90s for funds was a loophole called Reg S transactions. But that's another story.
In 2000-2003 the only strategy that worked was mutual fund timing. Every fund of funds loaded up on mutual fund timers. Now illegal. All the fund of funds redeemed their money from mutual fund timers and had to find a new strategy. moreHudson asks an even more interesting question--is it even possible for the people who Veblen insisted are trained only in the arts of force and fraud to ever make an honest living.
The Angelides Commission Squints Back at the Bank Bailout and the Fall of Lehman
Does Our Economy Really Have to Run on Fraud?
By MICHAEL HUDSON
What is the difference between today’s economy and Lehman Brothers just before it collapsed in September 2008? Should Lehman, the economy, Wall Street – or none of the above – be bailed out of bad mortgage debt? How did the Fed and Treasury decide which Wall Street firms to save – and how do they decide whether or not to save U.S. companies, personal mortgage debtors, states and cities from bankruptcy and insolvency today? Why did it start by saving the richest financial institutions, leaving the “real” economy locked in debt deflation?
Stated another way, why was Lehman the only Wall Street firm permitted to go under? How does the logic that Washington used in its case compare to how it is treating the economy at large? Why bail out Wall Street – whose managers are rich enough not to need to spend their gains – and not the quarter of U.S. homeowners unfortunate enough also to suffer “negative equity” but not qualify for the help that the officials they elect gave to Wall Street’s winners by enabling Bear Stearns, A.I.G., Countrywide Financial and other gamblers to pay their bad debts?
There was disagreement last Wednesday at the Financial Crisis Inquiry Commission now plodding along through its post mortem hearings on the causes of Wall Street’s autumn 2008 collapse and ensuing bailout. Federal Reserve economists argue that the economy – and Wall Street firms apart from Lehman – merely had a liquidity problem, a temporary failure to find buyers for its junk mortgages. By contrast, Lehman had a more deep-seated “balance sheet” problem: negative equity. A taxpayer bailout would have been an utter waste, not recoverable. moreOf course, there ARE traditional means of crime-fighting. Danny Schecter recommends them in his latest, Plunder, The Crime of our Time.