Suppose that [Warren] Buffett had deducted from the returns on his own investment - his own, not that of his fellow shareholders - a notional investment management fee, based on the standard 2% annual charge 20% of gains formula... There would then be two pots: one crteated by reinvestment of the fees Buffett was charging himself; and one created by the growth in value of Buffett's original investment. Call the first pot the wealth of Buffett Investment Management, the second pot the wealth of the Buffett Foundation.
How much of Buffett's $62bn would be the property of Buffett Investment Management and how much the property of the Buffett Foundation? The - completely astonishing - answer is that Buffett Investment Management would have $57bn and the Buffett Foundation $5bn. The cumulative effect of 'two and twenty' over forty two years is so large that the earnings of the investment manager completely overshadow the earnings of the invetsor. That sum tells you why it was the giants of the financial services industry, not the customers, who owned the yachts.
Similarly Nils Pratley makes the point today that the City has already made out like bandits:
private equity partners have enjoyed [a] privileged tax treatment. Carried interest – in effect, a bonus for good investment performance – is treated as a capital gain rather than income. This rate is 18%, and for many years was 10%. Given that advantage, a 50% rate of income tax ought not to be much to grumble about. The point is very simple: financiers enjoyed the fruits of the boom and being asked to pay more after the bust is reasonable.
He goes on to say that trying to tax the loot back off them might miss the point though.
I keep coming back to the view that one of the most 'progressive' things that lefties interested in how the financial system operates/could be reformed could do is co-ordinate a major push on fees. Not only do they eat a sizeable chunk of our savings and investments (far more, too, than the crumbs spent on corporate governance research and engagement), but this is how the City makes money to float free of the rest of society. Ultimately it's coming out of your pocket, and it's helping create disparity in wealth. Why wouldn't you be interested?