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Interesting Article
Old 10-08-2011, 09:18 AM   #1
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Interesting Article

Who Rules America: An Investment Manager's View on the Top 1%

Showed it to spouse, who read it, then said, "I knew most of that already." Some of it surprised me.
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Old 10-08-2011, 09:44 AM   #2
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Looks pretty accurate to me.
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Old 10-08-2011, 12:20 PM   #3
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Interesting article. I just had to comment on this quote from the article,

Quote:
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.
It seems to me that the way to gain freedom from financial worry is to become accustomed to a reasonably modest lifestyle. The key is in spending habits and how they compare with income.

I do agree that these levels of income and net worth would not buy "access to the true corridors of power and money", whatever that means. I am having too much fun in retirement to care.
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Old 10-08-2011, 01:44 PM   #4
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Yes, and he's a little off when he says

"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. ... Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired."

because he's apparently unaware of people who have lived below their means, started investing early, and invested wisely (and luckily).
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Old 10-08-2011, 01:46 PM   #5
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His bottom line:
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.
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Old 10-08-2011, 02:16 PM   #6
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incomes over $500k if working and a net worth over $1.8M if retired."
Shouldn't one have a stash of more than $1.8M with an income of $500k? Less than 4 years of savings/income is pretty weak.
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Old 10-08-2011, 02:28 PM   #7
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Shouldn't one have a stash of more than $1.8M with an income of $500M? Less than 4 years of savings/income is pretty weak.
From your quote, it sounds like two different groups:working or retired.
jus say'in!
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Old 10-08-2011, 02:30 PM   #8
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Quote: "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."
Not very much of the 'excesses' from the above named companies appears to have trickled down to the common stock holders.
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Old 10-08-2011, 03:17 PM   #9
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I guess Billie Joe & Bobbie Sue got it right after all!

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Old 10-08-2011, 09:02 PM   #10
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I went to a march in Portland, Oregon last Thursday. This article sums up a lot of what I observed based on the signs people carried and the conversations I had with people.

There were a lot of signs about reinstating the Glass-Steagall act and "corportations are not people" (referring to the 2010 Supreme Court ruling which allows corporations to spend as much money as they like to support or defeat political candidates).

What was of additional interest to me was the diversity of the crowd. It was not all college aged students by a long shot. I would say the average was 35+.
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Old 10-09-2011, 08:16 AM   #11
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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.
My heart goes out to these people, so rich in wallet and so poor in life.

What I'm hearing is anecdote after anecdote from a guy whose clients seem to have let lifestyle creep control their finances. No wonder they're so stressed out-- they don't have a freakin' clue how to manage their money, other than by making more of it.

I want to hear from the people who manage to save 50% of their income. In fact if they're making $500K/year then I want to hear from the ones saving 80% of their after-tax income. It'd be great to read an article written by a financial manager who sees dozens of that sort of client.

Oh, but wait, if they're able to figure out how to save that much money then they don't need a financial advisor, so nobody is collecting their stories. Except, of course, for Tom Stanley and members of this board.

I disagree with his view of the evil Wall Street financiers:
Quote:
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.
While their actions could certainly be called irresponsible, it implies some level of knowledge of the right thing to do. Everything I've ready by Michel Lewis and Roger Lowenstein shows the rank & file building the systems while their bosses drooled in awe over the potential profits-- yet not having a clue what their quants & spreadsheet wonks were creating.

I think a better characterization would have been "ignorant" and "greedy". That's just human nature. Maybe a better regulatory system, with rules on capital & leverage, would have kept these children from getting their hands on so many matches to play with at one time.
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Old 10-09-2011, 09:25 AM   #12
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I think a better characterization would have been "ignorant" and "greedy". That's just human nature. Maybe a better regulatory system, with rules on capital & leverage, would have kept these children from getting their hands on so many matches to play with at one time.
Well, I would not apply the term ignorant to the act of revoking the Glass-Steagall Act which paved the way for this mess. I suspect there was a lot of banking money behind it.

This article gives the following reason for putting the Glass-Steagall Act in place in 1933:

"Reasons for the Act - Commercial Speculation
Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks."

What Was The Glass-Steagall Act?


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Old 10-09-2011, 09:31 AM   #13
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Well, I would not apply the term ignorant to the act of revoking the Glass-Steagall Act which paved the way for this mess. I suspect there was a lot of banking money behind it.
Which would place it squarely into the aforementioned "greedy" category, right?

No matter how you label the reasons behind it, I do wonder if the 'recent financial unpleasantness' would have been significantly reduced had G-S still been the law of the land.
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Old 10-09-2011, 09:51 AM   #14
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'recent financial unpleasantness'
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Old 10-10-2011, 11:12 AM   #15
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He's touching on something that is starting to become pretty important.

The stratification of wealth has ramifications that we need to come to terms with. Just in my limited circle, I have a brother who makes x. My other brother makes 2x. I make 6x. My father makes about 18x . One of my father's friends probably makes 50x, and one of his friends makes 150x. Note that none of these numbers is exact, and as you get higher it is less about annual income as it is about your existing wealth, and I am not privy to everyone's finances, but they are in the ballpark.

What is crazy about this, is that I suspect that none of these people feel truly rich, because even the 150x guy is "only" making $3 million a year, and interacts with people making 10s of millions, and they interact with billionaires. I'm not very far up this chain, but my income puts me in the top 10% of this country. I'm starting to worry that the deal is getting bad enough for the people below me that they are going to start upsetting the apple cart.

The people at the very top of this chain have an awful lot of control over our media and our political system. I don't think that this is having a positive affect on the country. I'm not sure what the best course of action (if any) is to resolve it, but I think that if things continue unchanged it is going to end badly.

I don't think all that money is going to do the folks at the top (or me) much good if the whole system collapses into anarchy. I think they would be wise to stop trying to tilt the rules in their (our) favor any further.
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Old 10-10-2011, 11:19 AM   #16
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I don't think all that money is going to do the folks at the top (or me) much good if the whole system collapses into anarchy. I think they would be wise to stop trying to tilt the rules in their (our) favor any further.
See further, French Revolution.

French Revolution - Wikipedia, the free encyclopedia
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Old 10-10-2011, 11:38 AM   #17
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an investment managers view is very different from the LBYM crowd here.

What is interesting is seeing where these people live. I was in Potomac MD outside of DC and there is a building boom going on there for 5 million and up homes. Huge mansions on huge lots, with tennis courts and five car garages for their tinted window Lexus, BMW and Benz.
Such an incredible disconnect from the majority of the population of the world.
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Old 10-10-2011, 01:46 PM   #18
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So, we seem to be good at whining about the income inequality situation, but how do we fix it? I'm convinced that simply taxing those who make a bunch isn't necessarily the best idea. Sure, we can seize, through sky high taxes, most of what those making 150X average make, but they're still making it and will simply focus on eluding the tax man. How can we have them not make it in the first place? How can we control the income of pro athletes, entertainers, CEO's, entrepreneurs, highly compensated professionals and the rest of those devils?
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Old 10-10-2011, 02:07 PM   #19
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So, we seem to be good at whining about the income inequality situation, but how do we fix it? I'm convinced that simply taxing those who make a bunch isn't necessarily the best idea. Sure, we can seize, through sky high taxes, most of what those making 150X average make, but they're still making it and will simply focus on eluding the tax man. How can we have them not make it in the first place? How can we control the income of pro athletes, entertainers, CEO's, entrepreneurs, highly compensated professionals and the rest of those devils?
I don't have an answer, but I have a question that is a subset of your question. I have been trying to figure what has caused CEO salaries to sky rocket. Their salaries have been increasing at an unproportionate rate for a couple of decades.

Did the salaries start to go up excessively when the tax rates dropped on the upper income tax brackets?

Or, would it have anything to do with the popularity of mutual funds? I'm thinking that there are a larger of number of share holders via 401k plans. Perhaps I'm way off here...
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Old 10-10-2011, 02:46 PM   #20
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I agree that those are bad ideas.

I don't have any brilliant, transformational ideas. Some things I am in favor of--

1. Make it easier for shareholders to control/change their Boards of Directors in public companies. Currently, the BoD of most companies do a terrible job of setting compensation. The shareholders have no real recourse but to sell their stock. I think that if shareholders had a little more control, we might avoid some of the heads I win/tails you lose compensation packages that seem to have become standard for CEOs.

2. Stop trying to reduce taxes on capital. Our taxes on earned income are extremely high, while our taxes on capital have been dropping for decades, both in the capital gains/dividend rate and the effective tax rate for corporations. At this point it might make sense to just do away with the corporate income tax entirely in return for setting the capital gains/dividend rate back to ordinary income. With all the games that the big multi-nationals can play with deciding which susidiary gets attributed which income, the corporate income tax is approaching being voluntary for the multinationals anyway.

2b. If capital gains continue to get special treatment, stop letting hedge fund managers classify their earned income as capital gains.

3. Index the minimum wage to inflation

4. Reform/update the structure of unions to maintain workers bargaining power as a group while allowing for a better method of merit pay than senority. I'm fuzzy on details here, and maybe there isn't a good answer to this problem. I see the problems with unions as they exist today, but I also suspect that the removal of unions will increase the current downward pressure on wages for the bottom 80% of the population.

5. I'd love to come up with a way to reduce the influence that the top folks have on the writing of the rules, but I can't think of anything that is going to work. My only hope is that self-interest will keep them from stacking the deck so much in their favor that the system collapses, thus my efforts to convince a few people that it is an issue of importance.

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So, we seem to be good at whining about the income inequality situation, but how do we fix it? I'm convinced that simply taxing those who make a bunch isn't necessarily the best idea. Sure, we can seize, through sky high taxes, most of what those making 150X average make, but they're still making it and will simply focus on eluding the tax man. How can we have them not make it in the first place? How can we control the income of pro athletes, entertainers, CEO's, entrepreneurs, highly compensated professionals and the rest of those devils?
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