Hedge Funds as Bottom Fishers

This is truly rich – and likely to happen only in America. On the one hand, the U.S. capital city of Washington, D.C. pretends it can run the universe. On the other hand, it simply opts out of the proper conduct of national affairs when it comes to protecting the interests of the American people at large.

The latest case in point: corporate tax inversions. This process is used by companies that relocate their headquarters outside the United States solely for tax purposes (in order to benefit from a lower corporate tax rate, say, in the UK).

Faced with this very transparent tax-dodging device, only the latest such maneuver engineered by America’s tax lawyers and accountants, mighty Washington finds itself incapable of coming up with an effective defense. More specifically, it deliberately constructs its incapacity to keep it from acting in the public interest.

Efficiency — or bottom fishing?

And now U.S. hedge funds, never missing an opportunity to go bottom fishing and further hollowing out the nation’s economic fabric, have discovered an investment “strategy.” They are eager to find companies that stand to benefit from tax inversions as the latest trend to invest in.

This is just more evidence that obliterates any suggestion that these funds are interested in making capitalism more efficient, which is the noble claim they often hold out.

In reality, hedge funds are tools of the rich, by the rich and for the rich. More often than not, their strategy is to benefit from the inefficiencies and dysfunctions of the U.S. political system. Quite some capitalism that.

Method to the madness

But it gets worse. Hedge funds are doubling the ante. They make a political system that is already rigged to serve the interests of the rich even more so.

This is how it works: First, America’s rich use their ample bank accounts to spread campaign finance contributions. With most politicians of both political parties always eager to be on the take, that money buys them a lot of acquiescence among the moneygrubbers.

Then those same politicians, predictably enough, prove unwilling and/or incapable of enacting at least a straightforward defense against whatever the egregious practice of the day is, whether tax inversions, “death taxes” or what have you. Coming up with sensible proposals to reform U.S. corporate taxes isn’t that difficult.

Improper PR

Hedge funds, meanwhile, are all too happy about the world they get to operate in. They have PR handlers that misleadingly claim that the industry is all about more efficiency, implying that their existence raises the nation’s productivity.

And they also claim to add to the “liquidity” of markets. That certainly sounds good, but is another cynical misrepresentation of fact. Hedge funds only add liquidity to markets to the extent required to game the system in the perverse ways they concoct to benefit the very wealthy.

In truth, their business model has next to nothing to do with that. It is about exploiting a rigged political game and/or rigged markets in order to protect the material interests of the rich (who are their clients).

In fact, the markets aren´t so much rigged as – just imagine – that they are naturally inefficient markets. Hedge funds take advantage of that, but not at all in an effort to make them more efficient.

Wealth makes right

Rather, they do so purely for their own personal and their exclusive clients´ gain. In fact, hedge funds want these inefficiencies to remain locked in place — so that they can exploit them.

Perpetrating such frauds and delusions only works in a nation that worships money above all else, while being mathematically anumeric and politically naïve at the same time.

In the United States, as things stand, wealth makes right. Once upon a time, that may have been a Calvinist trait. In today´s world, the “wealth makes right” principle basically applies in underdeveloped societies, not developed ones.

Savor the irony – and the self-destructiveness not just of those hedge fund practices, but also of those traits in the population at large, when viewed at a national level.