Several news outlets are reporting today that David Tepper's hedge fund will make about $7 billion in profit this year. The fund boss himself is likely to take home around $2.5 billion of that. That's an awful lot. In a year when unemployment climbed into double-digits, a payday like that might anger some people. They might say that such an obscene profit at a time when so many Americans are suffering is exactly what's wrong with Wall Street. Yet, according to what I understand about how the fund made its money this year, I find it hard to criticize Tepper: he bet on America.

The Wall Street Journal explains where most of the year's gains come from:

Behind the wins: a bet worth billions of dollars that America would avoid a repeat of the Great Depression.


Through February and March, Mr. Tepper scooped up beaten-down bank shares as many investors were running for the exits. Day after day, Mr. Tepper bought Bank of America Corp. shares, then trading below $3, and Citigroup Inc. preferred shares, when that stock was under $1. One of his investors insisted more carnage loomed. Friends who shared his bullish beliefs were wary of aping his moves amid speculation that the government was about to nationalize the big banks.



So, from what this says, Tepper didn't make his money by doing those nasty things that so many people hate Wall Street for. He didn't create complex derivatives to trick naïve investors. He didn't short sell companies into oblivion. Instead, his bullishness paid off. He bet that the banks wouldn't ultimately fail, and he was right.

Now don't get me wrong: some or all of those banks would have failed if it weren't for the federal government. So is it fair that he reaps those gains? Well, sure. That's what investing is all about. You put money in companies that you believe will succeed. Sometimes the fundamentals tell you that. Other times external factors -- like a belief in the government's willingness to prop up a sector of firms -- might lead to you invest. But that's perfectly legitimate.

If anything, Tepper and other investors with similar strategies this year actually helped the government's cause. Investors who profited off the bank bailout were responsible for the bailouts working. If the panic had continued, and no one went near the bank stocks, then they wouldn't have recovered.

Of course, I don't mean to offer up Tepper or any other hedge fund manager for sainthood. In a different year, most would be more than willing to act far less heroically and bet against companies if that meant more profit. It just so happened that this year, it paid to be optimistic. But given the circumstance, I find it hard to criticize the gains that resulted, despite their ridiculous size.

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