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Soros on Alignment of Interests
Submitted by Leo Kolivakis, publisher of Pension Pulse.
The FT reports that Soros calls Wall St profits ‘gifts’ from state:
The
big profits made by some of Wall Street’s leading banks are “hidden
gifts” from the state, and taxpayer resentment of such companies is
“justified”, George Soros, the fund manager, said in an interview with the Financial Times.
“Those
earnings are not the achievement of risk-takers,” Mr Soros said. “These
are gifts, hidden gifts, from the government, so I don’t think that
those monies should be used to pay bonuses. There’s a resentment which
I think is justified.”
Mr
Soros, who joins a transatlantic chorus calling for limits on risk,
leverage and compensation at big banks, said proprietary traders belong
at hedge funds, not at banks, and that the compensation at Wall Street
companies should be limited to prevent excessive risk.
“With
the too-big-to-fail concept comes a need to regulate the payments that
employees receive,” said Mr Soros, who will elaborate on his views in
lectures in Budapest next week.
Some bankers have argued that
limits on pay would make it difficult for them to retain their most
talented risk-takers. Mr Soros agreed and said this would be a good
thing.
“That would push the
risk-takers who are good at taking risks out of Goldman Sachs into
hedge funds, where they actually belong, because hedge funds take risks
with their own capital, not with deposits and not with government
guarantees,” he said.
Asked if his opinions were influenced by
his personal investments, Mr Soros said no and pointed out that he has
long advocated more regulation of hedge funds.
Mr.
Soros is absolutely right, if they want to take risks, let them do it
managing a hedge fund on their own, not within a bank.
This way, they have skin in the game (I would never invest with any
hedge fund manager who does not have the bulk of their liquid net worth in
their fund). If their bets go wrong, they feel the pain.
But the banks want risk-takers and they pay big
bucks to attract and retain them. It's all about showing profits, even
if those profits come from people who have no skin in the game and
couldn't care less about the risks they're taking to maximize their
bonuses.
The same goes for pension funds with internal hedge
fund operations. In good years, portfolio managers can make a lot of
money, but in bad years, they can fall back on their four-year rolling
return. Total nonsense. I use to shake my head watching some "star"
managers at the large pension funds I worked for be treated like
royalty because they made $50 million, $100 million or $200 million
taking stupid risks with other people's money.
[Note:
People forget that to make a lot of money you got to take a lot of
risk. They look at the bottom line and never ask how were those returns
generated and were the risks acceptable or irresponsibly high.]
I'll
never forget a lunch I had with one senior pension fund manager and a
couple of sharp fund of hedge funds principals. Basically, this pension
fund manager was engaging in complicated, illiquid, twenty year swap
trades using the balance sheet of the pension fund he was working for.
Nobody really understood the risks he was taking but he was treated
like an 'investment god' inside this pension fund.
At the
lunch, he was exploring the idea of setting up his own hedge fund. He
explained the strategy to both fund of funds principals, and asked them
what they thought. One of them looked at him and told him straight out
"stay where you are at the large Canadian pension fund. Nobody in their
right mind would ever fund this strategy. You can do what you're doing
because of where you are but one day, you'll run into problems".
Sure
enough, in 2008, he did run into problems. He was exceptionally bright,
but he failed to appreciate the macro and liquidity risks he was taking and it ended
up costing him his job. I wonder if he would have taken the same risks
if all his net worth was tied up in the pension funds he was managing.
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Leo
Yea he's right and HE's one of the "gifted"
Check out the sweet, sweet, sweetheart deal he got on Indymac for helping get ZerObama elected, 20% maximum downside, after 20% government backstops it all and of course unlimited upside
Soros gnome of Zurich act is getting old, hes a cheap crook
No, Madoff was a cheap AND stupid crook. Soros took risks with his money and didn't make the bulk of his wealth ripping off pensions, charities and other investors. In 2008, Soros came out of retirement to preserve his wealth and he did it. You can accuse him of being shrewd but the fact is that he's among an elite group of hedge fund managers. Here he is taking on the wimps at Goldman Sachs and telling them straight out, "if you're so good, then try taking the risks placing your own money at bat and earn your performance fees". He is absolutely right.
Soros is a very smart and talented crook. He and his twisted agenda disgust me but his comments in this interview are spot on.
The man is living out the final years of his life. What 'agenda' are you referring to? To control the world? I could be wrong, but I think Mr. Soros knows that he has enough money and wants to leave something more concrete and more important to the global community. He realizes that ultimately his legacy will not be forged by being an extremely wealthy hedge fund manager. He wants to move on to bigger and more important things.
Putbuyer-why all the resentment towards Soros? I think he makes complete sense on this...
Soros, what a whiner. I really, really want his finger out of our soup. I don't know how he got bent, the origins, but its hard to understand how an iron-curtain kid could still be peddling Marx. Given his money, it can't be stupidity--which only leaves the nasty stuff--misguided idealism, control freak, envy, need for recognition. Never got invited to the good parties. Or pure evil. "Move on", #$%$#$#$%$.
TPTB ran the financial sector from 1991 on. They needed new, or rather, renamed toys to do it. Out in 2000, in in 2003, out again in 2007. Politicians are cheap, so are regulators, so are central bank heads and ratings agencies. Free markets my ass.
Anyone who's passed a series 7 would be able to recognize a cds as an unmargined otc put/call. Spike the financial sector's earnings with: an endless stream of margin-free "derivatives"; razzle dazzle customers with MPT and a repackaged unit trust--the cdo (diversification on steroids); find a loophole; buy a few votes; move a few squid around; model a AAA rating; move the crap off the balance sheet; borrow short/lend long; staff up the trading desks to generate counterparties; securitize anything and everything--EVERYTHING.
It's not Marx. It's Karl Popper. At least get your insults right.
Basically, what Mr. Soros is saying: Most on Wall Street are not earning their paychecks. It also speaks to how companies inflate the true worth of their top employees.
Trader Joe Schmo at Goldman Sachs in 2006: "I" made $100 million dollars with your capital this year. Therefore, I deserve at least 10% of that profit. If you don't reward me, I'll leave the company.
Trader Joe Schmo at Goldman Sachs in 2008: "We" lost $50 million this year but who could have seen this coming? Almost everyone is losing money this year. I'm a great trader. Look at what I did in 2006. Clearly, this whole financial meltdown is not my fault. I think I deserve at least $2 million bonus. If you don't reward me, I'll leave the company. Again, look at my results in 2006.
Leo, you say Soros. I say poison. I wait for the day to piss on his grave.
I basically agree with what he did say. But, I find it hard not think, ulterior motive, of anyone who talks about taking large risks without mentioning the risks taken and still being taken by the Fed.
Gyuri is such a putz. As a fellow Hungarian, he makes me sorry to say, we share the same-ish gene pool. Now beyind this ad hominem attack there is a big issue.
Bankers lived in a money bubble, not the smaller ones, those S-7's, they grew too big and like baby huey, well they flopped on Risk 101. No question.
But to say this is a problem of the system and not the witless and pride-less actors who endangered their opo's and our lives, well they need to be brought to their senses, pronto. A crime? Just serious sins of commission.
Call him what you want but Soros is 100% right on this.
Soros is so freakin old he couldn't possibly be doing this for
anything else (like money) other than for his name when
he dies in like 5 to 10 years.
So come on, he is struggling to make sense at his ripe old age and damn, he still makes a lot of sense here. And his
stuff is unpredictable enough=worth paying
attention to.
I agree with you on this Leo, he is spot on. I think that everyone is letting their emotions get the best of their judgement, and forgetting the phrase "set a thief to catch a thief".
Thank you for the post.
Of course he's right he's worse than Goldman sachs. Why don't you stick with what you know Leo and do a piece on all the pension funds Soros has fucked up!
Soros took risks with his money and didn't make the bulk of his wealth ripping off pensions, charities and other investors. In 2008, Soros came out of retirement to preserve his wealth and he did it. You can accuse him of being shrewd but the fact is that he's among an elite group of hedge fund managers. Here he is taking on the wimps at Goldman Sachs and telling them straight out, "if you're so good, then try taking the risks placing your own money at bat and earn your performance fees". He is absolutely right.
Sorry, Leo, it was not directed at you in anyway...Curious about his outburst, considering what he did to the Bank of England...Fed owners were not happy!...wonder how he feels now that Obama betrayed him?
+1000
Satan Speaks...nuff said...