For months, as I’ve read about the Madoff Scandal, Derivatives, and the financial crisis, I’ve listened to people talk about Hedge Funds. Most of what I read is baloney, like reading about "neoconservatives." But after months of trying to understand what they’re all about, I think it comes down to something as simple as this first line in the Wikipedia definition:
A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds and also pays a performance fee to its investment manager.
That’s all one needs to know:
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limited range of investors: special investors
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permitted by regulators to undertake a wider range of activities than other investment funds: special permissions
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pays a performance fee to its investment manager: special managers
I’m now in a position to offer my own definition of a hedge fund:
A hedge fund is any investment fund used by rich people to get much richer at the expense of the rest of us by operating in secret off the radar.
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hedge \hej\
noun Middle English hegge, from Old English hecg; akin to Old English haga hedge, hawthorn. |
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| 1. | a. |
a fence or boundary formed by a dense row of shrubs or low trees
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| b. |
barrier, limit
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| 2. |
a means of protection or defense[1] [as against financial loss]
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| 3. |
a calculatedly noncommittal or evasive statement
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| [1] "a means of protection or defense" against regulation AKA Truth, Justice, and the American Way… | ||
Sarcasm aside, I suppose that the justification was that if the super-rich wanted to risk their money it was their business. So when Bernard Madoff absconds with all their money, too bad. That’s the price they pay for being off the radar thinking their shady managers were getting them a special deal. But the insanity of it all is that these off the radar trades and Hedge Funds were places that banks invested in and actually set up for themselves. So the Hedge Funds became a place for massive corruption and fraud, giving them a platform to destroy the whole financial market. Put them back in the bowl!
One more reason we dodged a bad bullet in not nominating John Edwards, although I supported him in the early primary states. Think what we’d have to be dealing with if he had won: not only the mistress/baby scandal but also his getting rich in the hedge fund business.
Today, I read that the Hedge Funds are in big trouble – a lot of unemployment, people retrieving their money. Good News in a time of cholera!