Hedge fund

Bain Capital, a hedge fund run by Romney is in the news as a company that bleeds companies dry and provides profits to the investors. A hedge fund is a pile of money provided by individuals and the purpose is to return a profit. This money is sometimes referred to as venture capital. When banks think the risk is too high, companies turn to venture capitalist to get funding to keep going. Sometimes they win and sometimes they lose. To give an idea of how it would operate in a specific case you can think of the US Government as the venture capitalist in the General Motors bailout. Here is what happened.
When GM filed bankruptcy they had 80 billion in assets and 172 billion in liabilities, so the question is who took the losses.
GM bond holders lost 27 billion
650,000 GM retirees lost part of their health care benefits
GM stockholders lost all of their equity
GM shut down 14 US plants and that involves shedding 30,000 blue collar jobs and 14,000 white collar jobs.
The union gets a ten percent ownership in the new company and agrees to pay for half of the pension cost.
2,400 of 6,000 dealerships were closed.
Sold Hummer, Saab, Saturn, Pontiac and Olds.
By the time it was all over the company was half the size it was before but it was still in business. Without venture capital the entire company would have failed.
New Subject
During the last Presidential campaign Candidate Obama made the news when he spoke to Joe the Plumber and said he was going to spread the wealth around. This has widely been interpreted as spreading income around. I have calculated that if all of the income from the 1 percent was taken from them and given to the 99% it would provide each family with $15,000. This would be a nice gift but not a life changing event. However, if we take Obama at his word and redistribute the wealth that is a different story. The wealth of the country is estimated at 60 trillion and the 1% own half of that so if we take their half which is 30 trillion and give that to the 99% each family would get an extra $200,000.
Now that is a substantial amount but my guess is that even that big chunk of dough would be used up in a short time and the 99% would be back in the same boat they are in now. I say this because studies have shown that lottery winners of less than one millions experience only a short term change in their life styles.
The point of all this is that redistribution sounds like a great plan for the 99% but the truth is that there are not enough rich people to make a difference.
To illustrate the point on a larger basis if all the money in the world was redistributed each US family instead of having a net worth of $160,000 would have a net worth of $16,000.
If there is any lesson in all this, it is that if you want to increase your net worth, don’t wait for redistribution but get out there and go to work. You might be surprised at how much you can accomplish. Of course the first thing you need is a job.