Who Rules America? An Investment Manager's view on the top 1%

[angrydude]

I agree with this article.

Banking is not like regular corporations and should not be treated as if it were Walmart.

Our modern financial system is a bloodsucking leach that enslaves everyone not in the "know". Wall Street essentially makes its money by stealing it from everyone else. Every dollar that is printed out of thin air is theft from everyone else in the world who already holds dollars.

Then the real rich call the professional class rich and the poor believe them. In reality they are just well paid wage slaves.

Until the financial industry is drastically neutered (which won't happen because they own the govt.) these problems aren't going away.

[InRareForm]

The people that make them in that 1% are the same people that you say don't give back to the bottom 99%.

I see what you did there.

[boutons_deux]

James Galbraith on How Fraud and Bad Economic Thinking Got Us in This Mess

Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.

Similarly, Galbraith refers to an incident at the most recent Ins ute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud. The stunning part was how utterly unreceptive the panel and the audience were to his observation. You’d think he’d had the bad taste to say the host had syphilis.

I strongly urge you to read the entire piece; non-economists may want to skim the first third and focus on the crisis material and what follows. This is the key paragraph:

This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.

http://www.nakedcapitalism.com/2011/...+capitalism%29

but y'all give your money to these criminals and expect them NOT to abuse and steal from you? to act in YOUR best interests, and not THEIRS?

And y'all want to kill SS and give $Ts to Wall St?

========

Note how thorgoughly Wall St, VRWC, Repugs, Fox Repug Propaganda Network, conservative stink tanks, conservative hate-media have totally steered the conversation and accountability away from Wall St and capitalists for their overwhelmingly dominant, causative role in cratering the world's economies. It's all the fault (propaganda alert!) of F&F, CRA, and stupid homeowners, as Whott, and many others argued here, and still hold that position.

and of course, as the excellent Marian Wang has do ented, the executives of the most egregiously corrupt go unprosecuted, and nobody goes to jail.

Cheat Sheet on Bank Investigations and the Probes That Have Petered Out

As we and many others have noted, no top banking executives have been successfully prosecuted in connection with the financial crisis: not for making the bad loans that fed the mortgage machine, not for lying about the quality of the mortgages, and not for foreclosing improperly when homeowners struggled to make loan payments.

In 2008, the city of Cleveland sued Deutsche Bank and other financial ins utions alleging that subprime mortgage lending practices had resulted in widespread foreclosures and blight. A judge dismissed the suit.

etc, etc, etc.

http://www.propublica.org/blog/item/...ve-petered-out

====

Get caught with a joint? You're arrested, fined, and your job prospects are pretty much shot due to the arrest record, esp if you're black or brown.

[Marcus Bryant]

I've never understood why Cobra Commander has such concern for the wealthy. I'm not predisposed to punitive state actions against the wealthy and those with high incomes, but frankly their wellbeing is not a major daily concern of mine.

[boutons_deux]

"Cobra Commander"

I think he's wealthy guy, one of the top 1%. At least he whines about tax and govt as much as any 1%-er. Was it CC that runs a company that is a parasite on the bloated, stinking, corrupt carcass called US FOR-PROFIT sick-care industry?

[Wild Cobra]

I've never understood why Cobra Commander has such concern for the wealthy. I'm not predisposed to punitive state actions against the wealthy and those with high incomes, but frankly their wellbeing is not a major daily concern of mine.

I simply know a two people, who through hard work, became part of that upper income crowd. They were both small business owners who employed hundreds by the time they seceded.

[boutons_deux]

'seceded."

so these two are hate-government secessionists?

[Spurminator]

I'm just trying to show that soaking the super rich doesn't solve the problem. It may make some people "feel" better, but it doesn't do much to close the gap between spending and revenue.

You must really be hearing this talking point a lot on your radio the last few weeks because you keep repeating it over and over. Like it's some big genius epiphany that renders any discussion of increased taxes moot. You realize your line of reasoning could be applied at any tax rate? 10 years from now when the highest tax rate is 10%, you could oppose an increase to 12% by saying "Hey, we'd still be in debt if we made it 100%!"

That's because it's a stupid argument for stupid people like you. You ing sheep.

[Agloco]

Because to the layperson, the rich = Paris Hilton, Lindsey Lohan, et al.

There's a general perception that being or becoming rich requires luck and little else. Seeing the aforementioned riff-raff on the boob-tube every night does nothing to foster a sympathetic ear.

Really, its just hard for anyone who has to wonder week to week about how to put food on the table to listen to someone complain about higher taxes, especially when that someone has the option of never having to work another day in their life.

And there are people who come from very modest backgrounds, who work their ass off in school to get a good job, and who slave away at their work to earn their wealth. These people exemplify the values that we, as a society, laud: hard work, determination, and eventual success.

Yet once someone arrives at this point - I'm taking the 99-99.5% bracket of young professional lawyers, doctors, etc... - they immediately become demonized. I don't understand that at all.

As I told WC, it is what it is. The "have-nots" don't get "to that point" for various reasons. Then, human nature and an overall lack of perspective/knowledge takes over. You'll be hard pressed to find anyone who makes less than 50k who fully appreciates the work required of those who work their way up the social ladder like you illustrated (yes I generalized......).

One rotten apple spoils the bunch, and it's worm-laden cores like Lohan and Hilton that folks will remember, despite all of the hard workers out there.

[DarrinS]

You must really be hearing this talking point a lot on your radio the last few weeks because you keep repeating it over and over. Like it's some big genius epiphany that renders any discussion of increased taxes moot. You realize your line of reasoning could be applied at any tax rate? 10 years from now when the highest tax rate is 10%, you could oppose an increase to 12% by saying "Hey, we'd still be in debt if we made it 100%!"

That's because it's a stupid argument for stupid people like you. You ing sheep.

If common sense is a stupid argument, then guilty as charged.

[DarkReign]

Never understood those who produce nothing, create nothing are the most wealthy individuals in the world.

But thats capitalism in a nuts .

[RandomGuy]

http://sociology.ucsc.edu/whorulesam...t_manager.html

I sit in an interesting chair in the financial services industry. Our clients largely fall into the top 1%, have a net worth of $5,000,000 or above, and if working make over $300,000 per year. My observations on the sources of their wealth and concerns come from my professional and social activities within this group.

Work by various economists and tax experts make it indisputable that the top 1% controls a widely disproportionate share of the income and wealth in the United States. When does one enter that top 1%? (I'll use "k" for 1,000 and "M" for 1,000,000 as we usually do when communicating with clients or discussing money; thousands and millions take too much time to say.) Available data isn't exact, but a family enters the top 1% or so today with somewhere around $300k to $400k in pre-tax annual income and over $1.2M in net worth. Compared to the average American family with a pre-tax income in the mid-$50k range and net worth around $120k, this probably seems like a lot of money. But, there are big differences within that top 1%, with the wealth distribution highly skewed towards the top 0.1%.

The Lower Half of the Top 1%

The 99th to 99.5th percentiles largely include physicians, attorneys, upper middle management, and small business people who have done well. Everyone's tax situation is, of course, a little different. On earned income in this group, we can figure somewhere around 25% to 30% of total pre-tax income will go to Federal, State, and Social Security taxes, leaving them with around $250k to $300k post tax. This group makes extensive use of 401-k's, SEP-IRA's, Defined Benefit Plans, and other retirement vehicles, which defer taxes until distribution during retirement. Typical would be yearly contributions in the $50k to $100k range, leaving our elite working group with yearly cash flows of $175k to $250k after taxes, or about $15k to $20k per month.

Until recently, most studies just broke out the top 1% as a group. Data on net worth distributions within the top 1% indicate that one enters the top 0.5% with about $1.8M, the top 0.25% with $3.1M, the top 0.10% with $5.5M and the top 0.01% with $24.4M. Wealth distribution is highly skewed towards the top 0.01%, increasing the overall average for this group. The net worth for those in the lower half of the top 1% is usually achieved after decades of education, hard work, saving and investing as a professional or small business person. While an after-tax income of $175k to $250k and net worth in the $1.2M to $1.8M range may seem like a lot of money to most Americans, it doesn't really buy freedom from financial worry or access to the true corridors of power and money. That doesn't become frequent until we reach the top 0.1%.

I've had many discussions in the last few years with clients with "only" $5M or under in assets, those in the 99th to 99.9th percentiles, as to whether they have enough money to retire or stay retired. That may sound strange to the 99% not in this group, but generally accepted "safe" retirement distribution rates for a 30 year period are in the 3-5% range, with 4% as the current industry standard. Assuming that the lower end of the top 1% has, say, $1.2M in investment assets, their retirement income will be about $50k per year plus maybe $30k-$40k from Social Security, so let's say $90k per year pre-tax and $75-$80k post-tax if they wish to plan for 30 years of withdrawals. For those with $1.8M in retirement assets, that rises to around $120-150k pretax per year and around $100k after tax. If someone retires with $5M today, roughly the beginning rung for entry into the top 0.1%, they can reasonably expect an income of $240k pretax and around $190k post tax, including Social Security.

While income and lifestyle are all relative, an after-tax income between $6.6k and $8.3k per month today will hardly buy the fantasy lifestyles that Americans see on TV and would consider "rich". In many areas in California or the East Coast, this positions one squarely in the hard working upper-middle class, and strict budgeting will be essential. An income of $190k post tax or $15.8k per month will certainly buy a nice lifestyle but is far from rich. And, for those folks who made enough to ac ulate this much wealth during their working years, the reduction in income and lifestyle during retirement can be stressful. Plus, watching retirement accounts deplete over time isn't fun, not to mention the ever-fluctuating value of these accounts and the desire of many to leave a substantial inheritance. Our poor lower half of the top 1% lives well but has some financial worries.

Since the majority of those in this group actually earned their money from professions and smaller businesses, they generally don't participate in the benefits big money enjoys. Those in the 99th to 99.5th percentile lack access to power. For example, most physicians today are having their incomes reduced by HMO's, PPO's and cost controls from Medicare and insurance companies; the legal profession is suffering from excess capacity, declining demand and global outsourcing; successful small businesses struggle with increasing regulation and taxation. I speak daily with these relative winners in the economic hierarchy and many express frustration.

Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%. In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.

The Upper Half of the Top 1%

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.

Recently, I spoke with a younger client who retired from a major investment bank in her early thirties, net worth around $8M. We can estimate that she had to earn somewhere around twice that, or $14M-$16M, in order to keep $8M after taxes and live well along the way, an impressive accomplishment by such an early age. Since I knew she held a critical view of investment banking, I asked if her colleagues talked about or understood how much damage was created in the broader economy from their activities. Her answer was that no one talks about it in public but almost all understood and were unbelievably cynical, hoping to exit the system when they became rich enough.

Folks in the top 0.1% come from many backgrounds but it's infrequent to meet one whose wealth wasn't acquired through direct or indirect participation in the financial and banking industries. One of our clients, net worth in the $60M range, built a small company and was acquired with stock from a multi-national. Stock is often called a "paper" asset. Another client, CEO of a medium-cap tech company, retired with a net worth in the $70M range. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high. Last year, the average S&P 500 CEO made $9M in all forms of compensation. One client runs a division of a major international investment bank, net worth in the $30M range and most of the profits from his division flow directly or indirectly from the public sector, the taxpayer. Another client with a net worth in the $10M range is the ex-wife of a managing director of a major investment bank, while another was able to amass $12M after taxes by her early thirties from stock options as a high level programmer in a successful IT company. The picture is clear; entry into the top 0.5% and, particularly, the top 0.1% is usually the result of some association with the financial industry and its creations. I find it questionable as to whether the majority in this group actually adds value or simply diverts value from the US economy and business into its pockets and the pockets of the uber-wealthy who hire them. They are, of course, doing nothing illegal.

I think it's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top. Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.5%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

Not surprisingly, Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%.

I could go on and on, but the bottom line is this: A highly complex and largely discrete set of laws and exemptions from laws has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, do not understand how they work, are unlikely to participate in them, and have little likelihood of entering the top 0.5%, much less the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules. I am not optimistic.

Interesting read. Pretty accurate, from what I read.

[Wild Cobra]

Never understood those who produce nothing, create nothing are the most wealthy individuals in the world.

But thats capitalism in a nuts .

Industrialist has also become a bad word because of how some have abused the ideas.

[boutons_deux]

"Behind every great fortune is a great crime"

even behind Bill Gates' fortune

[DarkReign]

Industrialist has also become a bad word because of how some have abused the ideas.

I dont know if "industrialist" carries the same negative connotation now as maybe it did in say, 1900-1930?

[101A]

Why are people either so jealous or hateful of the rich?

Above 99%, below 99.5% and his description of that life exactly describes me. I'm the small business owner.

That said, I am VERY resentful of those in the top .1% - and their pawns in the Govt. who use the power of the Govt. to enrich themselves, and prevent anyone else form joining the party. THOSE people, through onerous regulations and taxes upon those of us ACTUALLY carrying the water, are inhibiting macro economic growth and wealth ac ulation. They take ridiculous risks, get burned, and the rest of us bail them out.

They are the ultimate drain on society. They don't play by the rules - they write the rules; this is NOT capitalism - this is a rigged system.

People like you are simply useful idiots, frankly. You defend these people to your last breath, even though, as the author points out, they are not providing any useful service to our society; not creating wealth or jobs; just draining money from the rest of us. They are leaches and parasites, and have wrecked the entire planet's economy for their own benefit; and have not been held accountable for their actions. (Nor have their puppets from both sides of the aisle in Washington).

It's nearing time to break out he torches and pitchforks.

[101A]

Never understood those who produce nothing, create nothing are the most wealthy individuals in the world.

But thats capitalism in a nuts .

No, it's not.

The proper word would be Aristocracy.

But they can't use that word; it would be too obvious what the problem is.

So they use "Capitalism" and "Democracy" and "Freedom" to keep us occupied, and not focused on the real problem.

[101A]

"Behind every great fortune is a great crime"

even behind Bill Gates' fortune

A couple off the top of my head:

He, essentially, stole DOS.

He then convinced IBM to let him develop OS2 while he ACTUALLY put resources and energy into NT.

[101A]

I simply know a two people, who through hard work, became part of that upper income crowd. They were both small business owners who employed hundreds by the time they seceded.

It does happen; but when the economy tanks because of the reckless behavior of the money changes; it makes it very difficult for those of us who are trying to do that now.

[Drachen]

Above 99%, below 99.5% and his description of that life exactly describes me. I'm the small business owner.

That said, I am VERY resentful of those in the top .1% - and their pawns in the Govt. who use the power of the Govt. to enrich themselves, and prevent anyone else form joining the party. THOSE people, through onerous regulations and taxes upon those of us ACTUALLY carrying the water, are inhibiting macro economic growth and wealth ac ulation. They take ridiculous risks, get burned, and the rest of us bail them out.

They are the ultimate drain on society. They don't play by the rules - they write the rules; this is NOT capitalism - this is a rigged system.

People like you are simply useful idiots, frankly. You defend these people to your last breath, even though, as the author points out, they are not providing any useful service to our society; not creating wealth or jobs; just draining money from the rest of us. They are leaches and parasites, and have wrecked the entire planet's economy for their own benefit; and have not been held accountable for their actions. (Nor have their puppets from both sides of the aisle in Washington).

It's nearing time to break out he torches and pitchforks.

Great take 101a.

[DarkReign]

Above 99%, below 99.5% and his description of that life exactly describes me. I'm the small business owner.

That said, I am VERY resentful of those in the top .1% - and their pawns in the Govt. who use the power of the Govt. to enrich themselves, and prevent anyone else form joining the party. THOSE people, through onerous regulations and taxes upon those of us ACTUALLY carrying the water, are inhibiting macro economic growth and wealth ac ulation. They take ridiculous risks, get burned, and the rest of us bail them out.

They are the ultimate drain on society. They don't play by the rules - they write the rules; this is NOT capitalism - this is a rigged system.

People like you are simply useful idiots, frankly. You defend these people to your last breath, even though, as the author points out, they are not providing any useful service to our society; not creating wealth or jobs; just draining money from the rest of us. They are leaches and parasites, and have wrecked the entire planet's economy for their own benefit; and have not been held accountable for their actions. (Nor have their puppets from both sides of the aisle in Washington).

It's nearing time to break out he torches and pitchforks.

Well ing said. I am in the 99% as well, but I do not influence government or write the rules, as it were.

The less than 1% above me need to be killed and eaten, period. I pay my taxes, I dont have tax shelters and repatriate periods afforded me or my business to shelter money overseas (nor do I want to). And you would never hear me complain about raising my taxes, ever. I make enough money in multiple vehicles, taxing my income a little more or raising the taxes on capital gains is a miniscule increase at best. I am not a financial manager, I am not an economist, thats why I never enter into those conversations. I am a small-business owner who works extremely hard to stay where I am. My whole world is wrapped up in this business, if I fail, I lose everything. If they fail, the taxpayer (you and me) just bail them out because theyre TBTF.

These people are nothing to the working man, they provide no benefit, their employment numbers would barely register on the overall scale. Theyre vultures, producers of nothing, exchanging information and zeros.

Gordon Gecko said it best in total contrast to Wild Cobra's ethos. To paraphrase, money is a zero sum game. Because money is power and there is only so much power to go around.

Less than 1% owns ~40% of the country's wealth (and climbing), that isnt sustainable.

These people at the very tippy-top are not Americans...or Chinese...or Japanese...or Mexican...or Saudi...or anything. They exist outside national borders, no loyalty to anyone or anything except their portfolio. With decades of evidence in the form of regime changes, resource exploitation, assassinations and political corruption, they will quite literally bleed everyone of us dry with even half a chance to do so.

IMO, its not about the money, the dollars and cents. Its about their power relative to others like them. Government never even enters their train of thought until they come up with yet another rule or regulation change that benefits them in some capacity. Then it is, literally, as simple as cutting a large enough check from multiple sources in order to make their dream a reality.

A blip on the financial radar for them, a new expense that they (also because they write the laws) get to write off as an expense.

[DarkReign]

No, it's not.

The proper word would be Aristocracy.

But they can't use that word; it would be too obvious what the problem is.

So they use "Capitalism" and "Democracy" and "Freedom" to keep us occupied, and not focused on the real problem.

Fair enough, aristocracy.

[boutons_deux]

A couple off the top of my head:

He, essentially, stole DOS.

He then convinced IBM to let him develop OS2 while he ACTUALLY put resources and energy into NT.

2 strikes on ya.

Let me hit it out of the ballpark for ya:

When mfrs were already struggling to squeeze every penny out of their 100s of 1000s, millions, of PC costs, Gates put a gun in their mouths:

"pay me a (reduced price) MS-DOS/Windows license for EVERY machine you ship, or pay me a MUCH HIGHER price MS-DOS/Windows when shipped only when ordered."

aka the DOS/Win tax

Of course, the mfrs HAD to pay Gates' tax, because the rest of the herd was.

Then the "network effect" took over, and suffocated every other OS, no matter what the merits, and no matter how absolutely ty single-tasking MS-DOS and it's graphic s called Windows 3.0 ( ).

btw, Gates' father is a lawyer.

[rascal]

It all doesn't matter, we all die and bring nothing in the end.

[Winehole23]

In other words, we are at the end of the illusion of a market place in the financial sphere.

While giving full credit to Obama for saving it, of course.