25 Men, $21 Billion: The Bursting Financial Bubble

In the name of the principle of precaution, we should introduce ourselves to the issue of the day as follows: Pay attention! The economy is about to give birth to another bursting financial bubble. But again? The 25 owners of the main American speculative funds have pocketed a total revenue that is twice that of all the elementary school teachers in the U.S. Dizzying!

During 2013, 25 individuals, all of them men, reaped $21 billion, a 50 percent increase from 2012. The one who led the horse race of financial phagocytosis has won, if we can put things this way, $3.5 billion. His name is David A. Tepper. In 2012, his portfolio had grossed $2.2 billion. Steve Cohen follows him with $2.4 billion and John Paulson with $2.3 billion. In 2008, the latter had made headlines for having “attacked” the real estate market before feeding upon his prey thanks to public subsidies.

While we wait for a financial alchemist to tell us everything that $3.5 billion could buy in one year, we will maintain that the combined return of the 25 speculative funds was 9 percent last year, which was well below the Standard & Poor’s 500 32 percent. Even worse, the performance of conservative and simple equilibrated funds was better than that of the above-mentioned speculatives. Goes to show how much showing off is part of the profession. In fact, we could never emphasize enough that their occupation consists of, to use the worlds of Paul Krugman, columnist for The New York Times and Nobel Prize winner, convincing people that they, the masters of the orchestra of speculation, are “anticipating what average opinion expects the average opinion to be.” [Translator’s note: This is actually Krugman quoting John Maynard Keynes in a New York Times article.]

The expansion of what we should call the economic confetti reflects, obviously partially, the massive liquidity in circulation in markets in all corners of the world. This mass flows from the injections by the central banks after the 2008 crisis. Today — we should think on this — the portion of liquidities that has the fingerprints of the central banks on it totals 25 percent of the global GDP, as opposed to 15 percent in 2007. We should ask ourselves whether we are caught in a liquidity trap.

Putting aside the actions of the central banks, the speculators also made their profits from a turn in the fortunes of emerging economies. They were apt to capitalize — that’s the reality of it — on a movement of capital out of Russia, Brazil, Argentina and China toward the U.S. and EU. To state the obvious: The unhappiness of some was the happiness of others.

That being said, this pronounced increase in wealth has already had a serious and very threatening consequence, according to Branko Milanovic, former chief economist of the World Bank and current NYU professor. After studying this phenomenon, Milanovic rules that the U.S. is “in essence … becoming a plutocracy” that is “politically empowering the rich. … The rich dictate the political agenda, finance the candidates who protect their interests, and make sure that the laws that are in their interest are voted in.” It should be noted that this is ultimately an echo of a long analysis recently written by a Princeton professor and another from Northwestern University, who assess that the U.S. is becoming more and more of an oligarchy and less and less of a democracy — in short, a social separation within the home, to use a sociological expression. And to see that after Thomas Piketty just as recently spelled out inequality, Wall Street and others raised their cries … Pitiful!