How Could Anyone Stay Angry At This Face?

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A thing that happens from time to time, and also yesterday, is that people in or around the financial services industry say furious things about Ben Bernanke:

"Ben Bernanke is running the most inappropriate monetary policy in the history" of the developed world, said Stanley Druckenmiller, the retired head of Duquesne Capital Management.

A thing that happened a lot today and yesterday is that people asked, well, why do they say such horrible things? "Because they're true" is a possible answer and if it's yours you might want to stop here, not much good is going to happen from here on out.

If you don't believe that Bernanke is a war criminal or whatever, you can read some other proposed answers - by Joe Weisenthal, Neil Irwin, and Matt O'Brien - but be warned, they're tough going if you like 2-and-20 fees and/or gold. Here, though, is a take from Matt Yglesias that I'm particularly fond of:

[Angry money managers] don't like the idea of macroeconomic stabilization policy. That's because it'd convenient for them if the market economy could be not just a practical tool for allocating goods, but an moral framework imbued with deep ethical significance.

And that, in turn, is an idea that sits oddly with the concept that actually you have a bunch of bureaucrats in the Federal Reserve System making the economy plug along. So rich guys indulge fantasies of shifting back to a gold standard or something else that would restore divine right to the monetary system. But beyond that, the central banker they like best is the central banker who's most obscure. Conventional monetary policy was something economists and bond traders paid attention to, but nobody else.

True? Meh, interesting. Yglesias then goes on to a too-clever link to taxation; the idea is that once everyone intuits that monetary policy is a lever for creating distributive outcomes then they will stop believing that the current distributive outcomes are correct and will tax away all of the hedge fund managers' money. Whatever! A couple of points though:

1. Paul Krugman tells Joe Weisenthal "finance types just hate, hate easy money policies, although you would think that these policies are often good for their bottom lines," and a lot of people say this, but, I don't know? My background is at a perhaps unusually dovish financial services firm so maybe my sample is skewed, but I suspect the sample of "people shouting at conferences" has its own biases. Standing up at a conference and saying "Bernanke is the worst central banker in history" is more fun and gets you more attention than saying "well actually those guys in Weimar were probably at least a little worse." If you think Bernanke is doing a fine job you probably spend your time talking up your stock picks or whatever, not mildly praising his record.

2. To the extent people hate Bernanke, there's a straightforward self-interest explanation. Neil Irwin writes:

Someone who had invested money in a diversified, passively managed mix of stocks and bonds has had a very good four years of returns. Meanwhile someone who used aggressive trading strategies may have lost a boatload of money if he or she bet wrong. When the world isn’t working the way you think it does, or should, it is mighty frustrating —all the more so when it costs you a lot of money.

The simple story is that if you're selling absolute returns for 2 and 20, and the S&P returned 16% last year and 10.6% so far YTD, then your product is less compelling by comparison, especially though not exclusively if you've returned less than that. And if you're selling old-school uncorrelated put-the-hedge-in-hedge-fund returns, macroeconomic stabilization is a direct competitor. If you're selling puts and Bernanke is giving them away, that hurts your bottom line.

3. But there's also this moral-framework business. I said on Twitter that the issue is not taxes, it's "what did Bernanke ever do to get to run so much more money than I do?" I think there's probably some very simplistic truth to that: running a big balance sheet is a pretty obvious sign of investing success, and Ben Bernanke's balance sheet is bigger than that of the entire hedge fund industry combined.1 So it's easy to feel like a resentful underdog even if you're also a billionaire.

Also, "markets can remain irrational longer than you can remain solvent," and even the most ardently anti-Keynesian investor knows that. It's a terrible feeling to know in your heart that you're right about some fundamental issue, and watch the market move against you. Especially if it carries the risk of margin calls, investor redemptions, or all the other bad things that can come from mark-to-market losses on an ultimately winning position.

This has a perceived moral dimension, too: you can't invest your preferences, you need to embody the strict discipline of only investing based on reasonable expectations of (reasonably) near-term market moves. This sucks, especially if your preferences do not match with near-term market moves, as is true of, say, Stanley Druckenmiller.

Ben Bernanke can remain solvent longer than markets can remain irrational.2 He has the cheat code. No moral discipline at all. Why wouldn't you resent him?

Billionaire investors take aim at Fed's policies at Sohn event [Reuters]
Rich Hedge Fund Managers Hate Ben Bernanke Because They Don't Want To Pay Taxes [Slate]
Why are hedge fund titans so upset about the stock market boom? [WonkBlog / Neil Irwin]

1.I kid, that's AUM, obviously levered hedge fund balance sheets are bigger than AUM.

2.Even in an ultimately losing position, which you'd sort of necessarily expect quantitative easing ("buy bonds when rates are low, sell them once rates recover") to be.