Ever wonder how hedge funds can make 20 percent returns during the worst economic crisis since the Great Depression, while your savings account grows smaller? Ever wonder how it’s possible for the top hedge fund manager in 2011 to make $1,442,308 an hour, while it takes the average American family over 29 years to earn that much?
Well, a slew of financial writers are quick to tell you that the answer is simple: hedge fund managers are simply much smarter than you are, so get used to it. But that's nonsense.
Hedge funds make enormous sums of money because they have an edge – one that pushes them out to the ethical limit...and beyond. Their edge often depends on obtaining privileged information that is inaccessible to the rest of us. Sometimes they get information illegally through well-paid sources inside corporate boardrooms, as Raj Rajaratnam did before he was sentenced to 11 years in the hoosegow. In other cases, hedge funds can buy it from congressional “sources.” And they even can get it for free when one of their own is appointed to the highest councils of government.
This sets up a vicious cycle – hedge fund money buys more information which leads to more hedge fund money which buys more information. It doesn’t take long for hedge funds to turn Washington into a wholly owned subsidiary.
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