Venture capitalist Chamath Palihapitiya has a conscience. and His statements on billionaires who run hedge funds and others will get noticed for some time. Please watch the video for my take.
Venture Capitalist: Wipe out the billionaires?
DailyKos has the best write-up of Chamath Palihapitiya’s necessary rant.
Chamath Palihapitiya, CEO of investment firm Social Capital, has been going on CNBC’s Fast Money Halftime Report with host Scott Wapner for the past few weeks, and recently he said something shocking: The government shouldn’t be in the business of bailing out failing hedge funds and Fortune 500 companies when there are millions of people losing their jobs and trying to figure out how to make ends meet. “What we’ve done is disproportionately prop up poor-performing CEOs and boards, and you have to wash these people out.”
Ostensibly Palihapitiya has been brought on to the show to assure viewers that the end of the world is not upon us. The markets have been dropping precipitously for a couple of weeks now; any little surge has been instantly erased by the end of the day. Palihapitiya first gave what can only be called the most simple and obvious and honest answer as to why this is happening, which is that investors are all over the map, following their emotional feelings from day to day, moment to moment, in a very unsteady time. But, as Palihapitiya said in a March interview on the show, he also had a lot of things he wanted to get off his chest.
In March he explained why allowing the 2008-2009 bailout money was a disaster that should not be repeated. He said buybacks are the main “game” played by the boards and CEOs of these companies to enrich themselves. “Now we have a whole bunch of companies who, you know, frittered away tens and hundreds of billions of dollars on buybacks when they should have been saving it for a rainy day, investing it in R&D, or doing something that was much more important than what they did. There needs to be consequences for those actions.”
Palihapitiya then talked about hedge funds and how since the 2008 crash they had taken up the shell game mantle, levering their investments to inflate the market. This inflation—which is great for the guys running hedge funds—is also the source of a lot of the volatility of the marketplace. It’s responsible for the wild swings and prospecting based on very big numbers, which are themselves inflated.
PALIHAPITIYA: These hedge funds are massively levered. You know you heard earlier about risk parity funds blowing up. These are not funds that are trading billions of dollars—Scott, when you go to a prime broker with $25 or $30 billion of Treasury securities, they’re allowing you to lever that up 10, 12, 13 times. In the case of some of these hedge funds, $100 billion funds running trillions of dollars of notional exposure and they are completely roiling the capital markets. They are turning around and turning upside down people’s 401ks and people’s pensions, driving companies down 70% when they maybe should only be down 30%. Somebody needs to answer for that volatility.
And all of these problems were predictable. The lessons we should have learned from the 2008-2009 bailout are once again being forgotten: “Now all of a sudden, if we have to go and step into the capital markets with United States dollars that everybody has a right to, as citizens of this country, to shore up the financial operations of the capital markets. Somebody has to pay a price for that as well, you know?”
It is imperative that Americans start to understand that billionaires and multimillionaires’ values are not necessarily proportional to societal worth. The people that do not have the luxury to sequester at home, the garbage collector, the doctor, the nurse, the grocery store worker, the delivery persons, and others should make it clear that absent their service, their worth, their value, we would all be in trouble.
Who is Chamath Palihapitiya
Chamath Palihapitiya is founder and CEO of Social Capital, whose mission is to advance humanity by solving the world’s hardest problems. Social Capital invests in and starts breakthrough companies in several areas, including health care, education, financial services and enterprise. Before founding Social Capital, Palihapitiya was a member of the senior executive team at Facebook and a key driver behind its rise to one of the most important and impactful companies in the world.
Prior to Facebook, Palihapitiya held leadership roles at Mayfield Fund, AOL and Winamp. He was born in Sri Lanka, grew up in Canada and graduated with a degree in electrical engineering from the University of Waterloo. Palihapitiya is also owner and director of the NBA’s Golden State Warriors.
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