Ben Stein writes:
magicians like Steven A. Cohen, founder of SAC Capital in Stamford, Conn., can regularly earn 40 percent a year - often more - on their capital. But why waste our time on envy or disbelief? Let’s put Mr. Cohen to work for the greater good. Let’s have the federal government issue about $10 trillion in Steven A. Cohen National Debt Retirement Fund Bonds. After interest is paid on the bonds, if Mr. Cohen makes 40 percent on the money, the fund will return 36 percent a year. That means that in only two years, he will have made roughly $10 trillion for the taxpayers, with which he can pay off the entire United States federal debt.
As I read this, I had to wonder about my belief in the Efficient Markets Hypothesis. But then Dean Baker brought a little reality to this discussion:
Well Cohen's modus operandi is to make bets ahead of the market. He finds the winners just before they start winning and dumps the losers just before they start losing. The economic benefit from Cohen's actions is that prices adjust somewhat quicker than they otherwise would ... Mr. Cohen's gains come from other shareholders. If he buys IBM stock before it rises, he helps to bring the stock price to its proper level, but he gets the gain rather than some other potential stock purchaser. By being faster and better informed than other traders, Cohen is able to garner earnings that would otherwise have gone to other shareholders. Higher returns for Cohen mean lower returns for everyone else.
OK, this may be a very small departure from a perfectly efficient market but Ben Stein’s 36 percent return is not a measure of the benefits from exploiting inefficiency. Rather it is the benefit to SAC Capital from exploiting others. But isn’t this kind of wealth transfer the real agenda for those who wish to privatize Social Security?