Imagine this scenario. An old friend shows up asking for money. Though you don’t speak often, your history with that friend runs deep. They helped shape you as a person and you have incredibly fond memories of them. In fact you even paid them tens of thousands of dollars to help you along the way.
Now, with hat in hand, they tell you they’re broke. Only, they’re not. You feel bad though, even if they are just short on cash. Plus, others could pass them by — which would be bad for the value of your association with them. So you give them some money and you both go on your way. Until they come back again. And again. And again. In fact, it turns out they’re asking every friend they ever had for cash.
So you start digging. You find out that your friend actually has a borderline monopoly. They have a business generating hundreds of millions, even billions, in revenue. They lock in customers for 4 years a time, sell them goods at sky high markups, and without fail, have a never ending stream of new customers every year. They even charge their customers 150% for lunch. On top of that, they collude with their peers to increase prices every year.
But the deal gets even sweeter. They’ve arranged for the federal government to underwrite their customers, who can no longer afford their product, with virtually zero lending standards and no cap. The best part is that no matter what, they get their tax funded pass through cash, and their customers are stuck with the bill! They didn’t stop there, they’re so savvy they’ve arranged to pay no income tax.
At this point you are left scratching your head, why in the world does my friend need this cash? After all, they’ve got a great little operation going. So you search deeper, knowing something else has to be missing. And there it is, the golden nugget that makes the first racket seem like a lemonade stand — a hedge fund.
Your friend is running a multi billion dollar hedge fund. Holy smokes, and he’s asking me for money!? Yes, of course he is. Because your friend, who was able to amass such an empire, tax free, is no dummy. Why would he ever build his new pool house and refurbish his third summer home with his own money when he can get it from you? If you pony up enough for him to build an olympic size pool too, he may even name it after you. What an honor!
So you go to your friend’s business to solve this once and for all. You’re greeted by one stellar employee only to find 10 others sitting around pontificating. Man that one works hard. You can tell they have a material impact on your friend’s customers. That one is a real treasure to society.
You ask your friend why he needs the extra employees and he explains that you are a rube who doesn’t understand the sophistication of his business. You press that they clearly offer no value to customers. He explains a byzentine system his company set up whereby any employee who works there long enough can’t be fired — no matter what. You point out half of them haven’t been there long, your issue with them is they’re pitching customers on products that have no value. Maybe even negative value. And wait a second, you’re charging them how much again? And the government is subsidizing this why?
You ask your friend plainly — you said you were broke, but you clearly just have cash flow problems — despite running the world’s greatest monopoly! You’re unwilling to make the obvious choice. The only choice. Tell me again, why do you need my money?
You have clearly struck a nerve as your friend refuses to entertain such sophomoric inquiries. He asks you to leave. What about all our good times? You ask. Suddenly, the friend who so frantically needed your money, has no interest in speaking with you. So you leave.
A few years later your friend shows up again acting as if the whole episode didn’t happen. He needs to meet payroll and build a new state of the art ice skating rink…
First published on October 13, 2020