Well, hedge funds are at again. And again. Ok, so they probably won't stop with their unethical-ness anytime soon. I hate to say it but most of the criticism they face is well deserved.
In this latest report, coming from our friends over at Naked Capitalism, hedge funds are now using basket options more than ever to save on tax expenses.
Here are some important abstracts taken from the article:
The Senate Permanent Subcommittee on Investigations released a report today that found that hedge funds have been using basket options to save billion in taxes. And when we say “billions,” the report indicates it’s more like tens of billions, since the paper estimates that the tax reduction achieved at one hedge fund, Renaissance Technologies, operated by the famed James Simons, was $6.8 billion.
Basket options were sold by Wall Street firms, in particular Barclays and Deutsche Bank, as a way to convert what would otherwise have been labor income into capital gains income. The bone of contention is that the IRS wrote a memo in 2010 telling players involved to cut it out, and they didn’t.
It's not a new strategy or a new idea by any means. Wall Street and banks in particular have been doing this for years. What makes it remarkable is how they continue to use such strategies in the face of harsh criticism coming from the public and some lawmakers. Of course, Wall Street is not obligated to act upon any kind of human emotion or morals, rather their main goal is to make money and become as profitable as possible so as to increase the return on their investors holdings. Of course, their clients come into play as only after looking out for numero uno!
The blame doesn't fall entirely on the banks' shoulders, but equally so on the government for a lack of oversight and regulation. This bell should be rung more.
Just because it's legal doesn't mean it's ethical.
This is an example of hyper or supercapitalism.
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