The Haves versus the Have-Nots

You hear a lot about hedge funds these days, but how you view that news depends on whether you are a "Have" or a "Have Not", whether you are wealthy enough to be unfortunate to have put money into hedge funds or are "lucky" enough to be too poor to be allowed to put money in hedge funds. When the economy is strong, the haves and the have nots are basically in the same "boat", but simply in different "classes" of service (ala first and coach class), with the have nots merely being envious of the out-size returns that the haves are getting. But as an economy weakens, the haves bail out of that same boat as their hedge fund "life boats" begin to bet that the original boat is going to sink. Gradually, and gaining momentum, more and more of the haves's "boats" (their hedge funds) place bigger and bigger bets on the likelihood of the original boat sinking, eventually advancing to the stage where they actively try to sink the boat to win on their bets. We saw that vividly back in the Summer as "naked shorting" became all the range among hedge funds. At that stage, the haves and have nots are clearly diametrically opposed, which is also very clearly not a very healthy social order at all. In fact, it got so bad that the government had to get involved to attempt to restrain this unruly "mob" of haves from preying in such an obvious manner on the innocent have nots. Eventually, one way or another, the government will step in and bail out all parties, or at least the survivors, but it is certainly a shame that so many seemingly smart and capable and rational "money managers" could collectively commit such irrational decisions to end up in such a predicament.

Does Wall Street really see Main Street simply as a "source" to be conquered, raped, and plundered? It certainly seems that way. Any short-term "profits" earned on Main Street would appear to be little more than a worm on a baited hook to lure the innocent deeper into the "pit" where escape inevitably becomes nigh impossible.

As it stands today, we have a society in which there is a rather clear line separating the haves from the have nots. The SEC calls that line an "accredited investor" (Rule 501 of Regulation D), which includes institutions and some individuals. You as an individual are only considered a "have" ("accredited" so that you are permitted to invest in hedge funds) if you meet these requirements:

a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase;

or

a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

There you have it, the bright line separating us have nots from the haves.

So, the bad news is that us have nots are not permitted to invest in hedge funds, but the good news (for angry have nots) is that those haves "fortunate" to be permitted to invest as "accredited investors" have been losing quite a bit of money lately, with a lot of it due to their own hubris rather than strictly at the expense of the have nots.

Nonetheless, I still think it is a real shame that we have such a class-based financial system. Ultimately, no good will come from it. If we ever want to recover confidence in the markets and retirement security, we need to have one strong boat that everybody can be in rather than this dichotomy of financial interests that virtually dictates that the haves will seek advantage over the have nots.

-- Jack Krupansky