Matt Taibbi has a brief article entitled More Evidence Wall Street Is Overpaid.
We’ll be getting to this more next week when we do our piece on Mitt Romney and the private equity business, but one of the most frequently-overlooked problems of the financialization age is that a lot of our brilliant financial engineers are actually pretty damned average, when it comes to playing the market.
Apparently only 11% of hedge funds have outperformed the S&P 500. The huge compensation for people working in this field comes not, it seems, from the market smartly allocating resources in the people who provide the highest return; but more from successful rent seeking by Wall Street firms who more or less control access to the casino.
In addition to being wasteful in terms of asset allocation, our current system is also probably a waste of talent. Taibbi again:
Someday we’ll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc. Because it seems like our best minds kind of suck at investing.
There is no doubt that Wall Street (i.e. finance) is overpaid. So are CEO’s. The market is not functioning well in this area at all.
To me, the question is, how do we address this issue with the least possible amount of market interference?
What’s wrong with market interference? The market is merely the mechanism by which those with hold hostage those without. It’s patently incompatible with individual liberty.