Last year, hedge fund founder George Soros made $4 billion. Five other hedge fund men made more than $1 billion. This, while hedge funds on the whole did much, much worse than a simple stock fund. Which brings us to the topic of socialism.

Hedge fundies earn much more money than anyone in any other sector of the finance. They make the pay of their fellow masters of the universe look positively paltry. No corporate CEO cracked $80 million last year. Even the titans of private equity, the swashbuckling robber kings of Wall Street, don't tend to pull in more than several hundred million.

The combined pay of the top ten highest-earning CEOs last year would not even rank in the top dozen highest earnings of individual hedge fund managers.

And this, of course, is the promise of hedge fund: the frontier of finance, where men with big dicks and bigger piles of money live or die on their own success. It is, as the myth goes, capitalism at its most pure: hedge fund managers are given huge amounts of money to invest, and if they make money, they get wildly rich; if they don't make money, they're out of business in two years. By this reckoning, hedge funders eat what they kill. If they reap huge fortunes, well, they earned.

But in what sense are these billion dollar paydays "earned?" Here is what George Soros' fund did last year to earn him $4 billion: it underperformed the S&P 500 index by 8%. In other words, Soros charged his investors fees that are well over 1000% higher than what they could have paid for a simple index fund that would have earned them more money. (Update: Soros' fund manages his own money. Typical hedge fund fees are around 2%, versus less than 0.2% for an index fund.) Likewise, Carl Icahn earned $1.7 billion just for matching the returns of the broader stock market last year, and Ray Dalio earned $900 million after his main fund severely underperformed "both the average hedge fund and the U.S. stock market for two straight years." When you pull out and look at the hedge fund industry as a whole, you find that it pulled in returns of less than 10% last year—the fifth straight year that these Highly Sophisticated Vehicles For Highly Sophisticated Investors have done worse than the cheapest and simplest stock market index fund that you could buy online in a few minutes.

Even the shittiest hedge fund managers earn tons of money, because they charge their investors not just a hefty percentage of profits, but a fee of around 2% on the total amount of money invested—meaning, for example, that a chimpanzee running the world's least successful $1 billion hedge fund is guaranteed a salary of at least $20 million, even if he loses all of his investors' money in the process. (This is not a far-fetched example.)

Okay, so hedge funds are a scam to soak rich people who are not sophisticated enough to understand that they are not sophisticated. Big deal, right? Even Businessweek magazine came to that unavoidable conclusion. I don't particularly care about wealthy people throwing their money away on poor investments; I care about the fact that all of that money is being deposited directly into the pockets of even richer people, who pay less tax on it than a mechanic pays on his paycheck. Most hedge fund earnings fall under the "carried interest" tax loophole, meaning they're taxed at about half the rate of regular income. Ongoing efforts to close that loophole attract the most vociferous form of opposition lobbying from Wall Street, which can be explained by greed, and nothing else.

Last year, the 25 highest-earning hedge fund managers collectively earned $24.3 billion. Assuming that most of that was taxed as carried interest rather than as income, that means that this tiny group of people by themselves cost the government billions of dollars in tax revenue that would have been paid under a fairer system of taxation. As a matter of fact, you could fund the entire budget of the UN Refugee Agency with just the amount of tax money that stayed in the pockets of these hedge funders because of that tax loophole.

This is where private financial swashbuckling meets the public good. One side will win, and one side will lose. To defer to the bank accounts of a tiny group of insanely rich hedge funders over the needs of the public at large is insane. This week, economists at the IMF issued a new report that finds that redistribution of income has a "statistically insignificant" effect on economic growth—in other words, that policies designed to combat economic inequality, like high taxes on the very rich, do not hurt a nation's overall economy. "Rather than a trade-off [between economic growth and economic inequality]" they write, "the average result across the sample is a win-win situation, in which redistribution has an overall pro-growth effect, counting both potential negative direct effects and positive effects of the resulting lower inequality."

If wealth can be redistributed within a society without harming that society's overall economy, a key pillar of right wing economic argument is destroyed. It is a given that our society is not fair. It does not offer equality of opportunity, nor equality of outcome. Knowing that, what we can do is pursue equality on the back end, by taking some from those who have way too much, and giving it to those in desperate need. An extremely mild way to do this is to tax hedge funders at normal tax rates. By keeping that money in their own pockets, they are making themselves into enemies of the public. Our current system, in which teachers can barely lead middle class lifestyles, but a man whose firm is knee-deep in insider trading practices can earn $2.3 billion per year while paying lower tax rates than those teachers, is unconscionable.

The biggest thugs of all operate fully within the law.

[Photo: Flickr]