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Pastimes : Triffin's Market Diary -- Ignore unavailable to you. Want to Upgrade?

To: Triffin who wrote (307)	1/12/2007 10:03:16 AM
From: Triffin	Read Replies (1) \| Respond to of 869

BC: BANANAS FOR THE MONKEY .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. Bananas for the Monkey William Baldwin You can't enjoy the fruits of free-market capitalism without someone to harvest the fruit. Those investment bankers with the seven-figure bonuses make sure this nation's capital is put to the best possible uses. With them, we enjoy boundless prosperity. Without them, we'd be investing in something foolish like satellite radio or Web grocers. Still, it's fair to ask whether the middlemen need to get paid quite as well as they do. The question will cross your mind as you read Neil Weinberg's account of Goldman Sachs (nyse: GS - news - people ). Since the financiers at Goldman are especially clever and hardworking, it would be wrong to impugn these particular middlemen. Instead, let's impugn Wall Street as a whole. The investment sector is overcompensated. Profits of nonfinancial U.S. corporations are $800 billion a year. For making sure that capital is allocated to the right corporations, Wall Street pockets $300 billion a year. Eight bananas harvested, three eaten along the way. Here's where the latter figure comes from. Stockbrokers' revenues (net of interest costs) were $186 billion in 2005, according to the Securities Industry & Financial Markets Association. It's a good bet the 2006 number will come in higher. The mutual fund industry gets a fee of $72 billion a year for allocating $10 trillion of your capital. Now throw in something for the 2-and-20 crowd, namely private equity managers, venture capitalists, hedge fund operators and funds-of-hedge-funds operators. For handling $1 trillion or so they are probably collecting $40 billion. (Assume that all get 2% for turning on the lights and that half get lucky, making a 20% return, on which the performance fee is 20%.) It's only a rough comparison. The revenue figures reflect, in part, work allocating capital to some place other than the nonfinancial corporate sector. On the other hand, they omit fees collected by all manner of planners, advisers, pension consultants, stock pickers, dog walkers and commodity traders who are on their own or work at insurance companies and commercial banks. If these characters are overpaid, it's your fault. Save yourself some money with three easy steps: --Put half your assets in low-cost index funds. These work only because someone else is striving, at great expense, to analyze securities and keep them fairly priced. With an index fund you get a free ride. --Trade sparingly. --Don't buy hedge funds.