An uneven recession

[MichaelB]

Highland Capital Management LP, the investment firm founded by James Dondero and Mark Okada, said one of its hedge funds was wiped out by losses on high-risk debt securities, at least its third fund since October to close.

Bloomberg.com: Worldwide

After the economy bottoms and begins growing again, I suspect the average income in the US will have declined a lot, but the median income will decline much less (or not at all). This will be a recession for the economic middle and lower income families but a depression for the high income and high wealth population. Loss of wealth now and higher taxes later – not a pretty picture.

The light at the end of the tunnel – it’s not a ray of sunlight. Folks are mostly focused on how low the markets will go. Even if they level off and just hang, if the economy recovers slowly and weakly, there's still lots of pain ahead.

I do want to end on a cheerful note, so have a nice weekend

 

[boont]

For Instance

On my November 26, 2008 Post...

"I was saying to the wife the other day that I thought this downturn might be a little different than the real old ones. For instance, I think that it may harm the Harvard endowment crowd a lot more than the working stiff."


December 11, 2008

Bernard Madoff arrested in connection with an investment scam that reportedly has lost wealthy investors $50 billion dollars. The rich from Palm Beach, to Hollywood, to New York, to France, Asia, and Russia all lost millions and several lost billions.

A new report indicates investment losses left Gulf Arab government funds more than $80 billion poorer last year despite the windfall from record oil prices. (latimes.com)

We've had at least three suicides of extremely wealthy men. The German billionaire Adolf Merckle took his life over market losses. Thierry Magon de La Villehuchet killed himself over Madoff losses, Kirk Stephenson threw himself in front of a train over Lehman Brothers losses, Steven L.Good real estate magnate from a gunshot wound in his Jaguar, cause unclear.

Fairfield Greenwich Advisors lost $7.5 Billion, Tremont Holdings $3.3 Billion, A Spanish Bank $2.8 Billion, An Austrian Bank $2.1 Billion, Ascot Partners $1.8 billion, Carl Shapiro, the Palm Beach clothing billionaire, lost $400 million, Liliane Bettencourt, one of the world's wealthiest women and heiress to the L'Oreal fortune, entrusted part of her $22.9bn (£15.5bn) fortune to Bernard Madoff, Mortimer Zuckerman, the real estate developer and owner of The Daily News of New York, lost $30 million, Russian oligarchs, untold millions, Steven Spielberg, Jeffry Katzenberg, the list of wealthy investors goes on and on.

January 7, 2009

What of Joe Six Pack? Well, if he is still driving that truck he got his fuel and heating costs cut by about 60% and he is looking to refinance his home and save a little more than last year.

boont

 

[Gone4Good]

In downturns like these the wealthy always lose the most, because they have the most to lose. But if given a choice between losing 90% of $10MM or losing the only available minimum wage job in my area, I'll stand in line to take the option of losing 9MM bucks.

 

[samclem]

One of the (many) reasons California looks like it could be the first state to ever declare bankruptcy is that its income tax is highly "progressive." The wealthy have been disproportionately hit by the recession, so the California state revenues are in the toilet. If they had flatter taxation, the impact on state govt revenues would have been far less.

Those evil rich have found yet another way to oppress the poor--by losing all their money.

 

[Grep]

Wealthier people tend to have a higher percentage of their wealth in stocks, and so they have almost certainly lost more.

California passed sweeping tax increases, etc., and will not be declaring bankruptcy any time soon. I'm not sure of which tax increase will have the biggest bite for most people, but the sales tax is going up a whole percent, and that's a flat or regressive tax. It's pretty bad timing, but it would be far, far worse if the state really did go bankrupt.

 

[deserat]

samclem - the thing about CA is the nickel and diming to death along with the progressive income tax - examples: increases in sales tax by .25% on the ballot every election time, increases in garbage pick-up costs, increases in property tax for parks maintenance or other some such; while I lived there the bridge tolls went from .75 cents to $4.00...that's in 8 years and nary with a vote - just a wave of the hand and "you will pay"; the extension of the carpool lanes all the way into Solano county - and yet, no increase in the access to mass transit; mass transit (train that I took) had lower priority than freight trains - our train was rarely on time; extra internet and phone fees.....on and on and on. I began to wonder if they wanted people to who didn't fit the political philosophies that were being promoted to leave by making it too expensive to have a different philosophy. Yes, the state is beautiful and there's a lot of fun things to see and do, but the scales tip in favor of visiting only or rarely versus living there when the price point becomes too high. The middle class are being squeezed horribly. I can understand the nickel and diming in a state like TX or FL that doesn't have an income tax, but to have both as in the state of CA gets old quickly.

 

[ERD50]

One of the (many) reasons California looks like it could be the first state to ever declare bankruptcy is that its income tax is highly "progressive." The wealthy have been disproportionately hit by the recession, so the California state revenues are in the toilet. If they had flatter taxation, the impact on state govt revenues would have been far less.

Those evil rich have found yet another way to oppress the poor--by losing all their money.

Someone on the other coast seems to be "getting it":

Michael Bloomberg Objects to Income-Tax Hikes for New York Households - WSJ.com

Mayor Bloomberg ... said that raising taxes on high earners could drive them from the city. "One percent of the households that file in this city pay something like 50% of the taxes," explained the Mayor. "In the city, that's something like 40,000 people. If a handful left, any raise would make it revenue neutral. The question is what's fair. If 1% are paying 50% of the taxes, you want to make it even more?"

New York state lawmakers are considering income tax hikes for households earning between $250,000 and $1 million, who already pay 6.85% to the state. Meanwhile, City Council Speaker Christine Quinn wants to increase the city's top tax rate of 3.68% for households earning as little as $297,000 (to 4.25%); those earning $532,000 to $1.2 million would pay 4.45%; and above that 4.65%.

6.85% State, plus 4.65 CIty, plus sales taxes...

So just 1% pay 50% of the taxes, let's see, raise rates by ~ 15%, if 15% decide to move, it is a net nothing. Except those rich people also took the jobs they create (so some maids, cooks, tutors, music & dance teachers, etc lose their jobs) and their sales tax with them, so it is a net loss.

I think we should just eliminate ALL forms of taxes, and replace it with a 100% tax (income and net worth) on the single richest person in the US. Bleed them dry, and then move on the next one. That person could act as the scapegoat for all the ills in this country. And the majority would prevail.

-ERD50

 

[dex]

I think we should just eliminate ALL forms of taxes, and replace it with a 100% tax (income and net worth) on the single richest person in the US. Bleed them dry, and then move on the next one. That person could act as the scapegoat for all the ills in this country. And the majority would prevail.
-ERD50

Not being one of those who would be taxed; I say, let's do it.

I'm really liking these liberal ways of thinking - no accountability, reason or shame required.

 

[jug]

The problem is the country and it's people have been living beyond their means for years, living off credit, believing they deserve the best, deferring the future.

Compared to any other country on earth, we live the most on imaginary money, placing our bets in an imaginary casino (wall street) where the "experts" tell us our future is secure. Housing was overpriced, due to Greenspan lowering interest rates after 9/11, done to keep wall street happy.

Everyone wanted to get rich quick, everyone wanted what they couldn't afford, the middle class (people on treadmills) tried to emulate the rich, things became inflated, credit was stretched beyond imagination and boom, it all came crashing down. The problem is this "psychology" also applied to spending by our local and federal government.

What to do, well we are now gonna feel the pain, what goes way way up, eventually comes down. Who we gonna tax? the rich? the middle class? who? California is an extreme example of this entitlement psychology but they are up to their eyeballs in debt.

Now we are entering the unknown, depending on which region you live in. There are no gurus, keep that in mind, and at the very least, things will go back to the ugly normal, but more likely than not. At worst, or more probable, there may very well be an extreme change in our currency, since we are approaching huge national debt trying to avoid the pain we should be experiencing now.

Looking at the market is useless, the whole shabang has no transparancy to it, and their balance sheets are meaningless since the devil is in the details, not even found in footnotes.

The scariest or most interesting fact is that our major banks are bankrupt, something like an anchor store at a mall, or rather several anchor stores having empty racks or about to close.

Many of us here should well understand this, we retired early because we lived below our means. The rest of the country is still on the treadmill turning out useless widgets no one wants to buy.

Jug

 

[Bikerdude]

On my November 26, 2008 Post...

"I was saying to the wife the other day that I thought this downturn might be a little different than the real old ones. For instance, I think that it may harm the Harvard endowment crowd a lot more than the working stiff."


December 11, 2008

Bernard Madoff arrested in connection with an investment scam that reportedly has lost wealthy investors $50 billion dollars. The rich from Palm Beach, to Hollywood, to New York, to France, Asia, and Russia all lost millions and several lost billions.

A new report indicates investment losses left Gulf Arab government funds more than $80 billion poorer last year despite the windfall from record oil prices. (latimes.com)

We've had at least three suicides of extremely wealthy men. The German billionaire Adolf Merckle took his life over market losses. Thierry Magon de La Villehuchet killed himself over Madoff losses, Kirk Stephenson threw himself in front of a train over Lehman Brothers losses, Steven L.Good real estate magnate from a gunshot wound in his Jaguar, cause unclear.

Fairfield Greenwich Advisors lost $7.5 Billion, Tremont Holdings $3.3 Billion, A Spanish Bank $2.8 Billion, An Austrian Bank $2.1 Billion, Ascot Partners $1.8 billion, Carl Shapiro, the Palm Beach clothing billionaire, lost $400 million, Liliane Bettencourt, one of the world's wealthiest women and heiress to the L'Oreal fortune, entrusted part of her $22.9bn (£15.5bn) fortune to Bernard Madoff, Mortimer Zuckerman, the real estate developer and owner of The Daily News of New York, lost $30 million, Russian oligarchs, untold millions, Steven Spielberg, Jeffry Katzenberg, the list of wealthy investors goes on and on.

Dang! No more caviar for the cat.

 

[clifp]

I think we should just eliminate ALL forms of taxes, and replace it with a 100% tax (income and net worth) on the single richest person in the US. Bleed them dry, and then move on the next one. That person could act as the scapegoat for all the ills in this country. And the majority would prevail.

-ERD50

I think that is a terrific idea (yes I know we are both being sarcastic.) Of course there are a number of problems, but lets start with the single most scary thought.

If we totally confiscate Bill Gates AND Warren Buffett's wealth it wouldn't pay for a single day of Federal government spending.

 

[Koolau]

samclem - the thing about CA is the nickel and diming to death along with the progressive income tax - examples: increases in sales tax by .25% on the ballot every election time, increases in garbage pick-up costs, increases in property tax for parks maintenance or other some such; while I lived there the bridge tolls went from .75 cents to $4.00...that's in 8 years and nary with a vote - just a wave of the hand and "you will pay"; the extension of the carpool lanes all the way into Solano county - and yet, no increase in the access to mass transit; mass transit (train that I took) had lower priority than freight trains - our train was rarely on time; extra internet and phone fees.....on and on and on. I began to wonder if they wanted people to who didn't fit the political philosophies that were being promoted to leave by making it too expensive to have a different philosophy. Yes, the state is beautiful and there's a lot of fun things to see and do, but the scales tip in favor of visiting only or rarely versus living there when the price point becomes too high. The middle class are being squeezed horribly. I can understand the nickel and diming in a state like TX or FL that doesn't have an income tax, but to have both as in the state of CA gets old quickly.

Deserat,

Many of the issues you describe are applicable to my adopted state of Hawaii. Add up all the taxes and fees, etc. and I'm sure we are in the top tier for total taxes. You rightly point out the beauty of California. We too have beauty in spades. But the things we pay taxes for are no better (and in such things as schools and infrastructure in general) are in far worse shape than lower-taxed states that I know about.

Everyone knows what the problems are but they accept the status quo. I think it's a cultural thing here. Is that true in Calif. as well? This aspect of my "transplant" has been the most difficult to deal with. I'm learning to "hang loose" but it's taking some time. I'm thinking about canceling the paper so I don't have to read about this stuff any more.

Think I'll go sit on the Lanai and soak up some rays. Ah, yessssss. Now I remember why I came.

 

[ERD50]

I think that is a terrific idea (yes I know we are both being sarcastic.) Of course there are a number of problems, but lets start with the single most scary thought.

If we totally confiscate Bill Gates AND Warren Buffett's wealth it wouldn't pay for a single day of Federal government spending.

And that is why I said we just keep moving down the line. You see, I'm so much smarter than those Washington types with their static models. Mine is dynamic: self-regulating, self-sustaining, self-adjusting. It's beautiful.

Until they get down to you or me. Well, me

-ERD50

 

[clifp]

I have a slight improvement to your suggestion. Lets shoots the richest people then seize their wealth. This would encourage rich people to spend, spend, spend thus stimulating the economy. In fact it would probably open new job opportunities as professional spenders to help rich people avoid being executed.

Sadly most of the members of the board would not be good candidates for professional spenders but in a year or two we probably be force to become so.