Tuesday, October 28, 2008
The Skim Biz Takes A Hit
From my ultra-cynical perspective, the finance and banking business has always been just a giant skimming operation.
All bankers and financiers do is facilitate large transfers of money so they can skim off a piece of the action. The most palpable example may be the real estate agent. The idea that a $700,000 housing transaction is subject to a $35,000 facilitation fee is, of course, thoroughly disgusting, but also quite illustrative of the lucre involved in the skim biz.
Investment banking with its *underwriting fees* would also serve as a great example.
Anyway this is short post. All I wanted to discuss was *asset management*.
Consider that most asset managers skim a *percent of assets* off every year from investors that they use, ostensibly, to run their businesses. It could be .5%, 1%, 2%, or more. With equity markets down 40% YoY, it follows that - without even counting redemptions - the skim pool, at least on the equity side, will be approximately 40% lower for 2009.
Who does this affect?
Well, it affects all the analysts, portfolio managers, and support staff at firms like Fidelity, Putnam, State Street Bank, etc. - to at least name some large local employers.
How Happy would your New Year be if you had to make do with a 40% salary reduction?