"Recovery!" WHAT Recovery??

[stevea]

As far as "self-realization goes" (that's a little Deepak Chopra-esque for my tastes), Europe had better social mobility than the United States:

Not so. The international exchange rates for currency capture something important about the value of trade good, but that don't relate well to the local cost of local goods, services. A nice villa in India costs dramatically less than a similar place in Switzerland. In many places in the US one can buy 20 undeveloped acres of good land for less than the average workers annual income - that's impossible in Germany or the UK, so there are opportunities in the US that are infeasible many other places. Then we have the issues of taxes, legal restrictions and unavailability of opportunity.

Again - look into what is required to start a small business, collect capital, meet regulations for trade in the US vs Germany - it's no contest.

http://cep.lse.ac.uk/about/news/IntergenerationalMobility.pdf

Two problems with your argument based on this paper.
1/ This is about economic mobility, not the social mobility you referred to.
2/ They define mobility as transitions in income quartiles, but these quartiles are vastly different in dollar quantity in the various nations (the US has a very high GINI index). As well as my argument above that the dollar quantities are not comparable in terms of the price of local goods and services.

See that to transition from the 2nd to 4th quartile (50th to 75 percentile) in the UK (2007-8) is 11k Pounds, or ~10k Pounds for families [$15.2k, $16.7k].
The same percentile difference in the US is about $35.7k !! More than double the dollar amount..
http://www.hmrc.gov.uk/stats/income_distribution/3-1table-jan2010.pdf
http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Now compare those dollar amounts to what they can buy in the local market. The average US home sale price is ~$180k. The average UK home asking price is is double that - $362k ! Again a factor of 2 advantage for the US.

So the same degree of lifestyle mobility that relates to a 25 percentile advance in the UK may only be 6-7 percentile increase in the US. That's a very ballparky relation, but clearly there is a major error in your comparison.

Of course you've decided that "self-realization" is what we're measuring, and since that term has no actual meaning, you will just argue that you intended to show something else.

Arguing against my potential response makes you "Dances-with-Strawmen".

That is changing. One of the main reasons this is changing is due to sky-rocketing health care costs. Countries like Australia, New Zealand, and Canada are mimicking US corporate law, but they also provide health care, meaning that it's cheaper to start up. The US is still the leader, but that may not be true in a decade

So much unsupported argument here, where shall we begin ? How about this gaffe - your claim "it's cheaper to start up there" you assert that b/c the business and the employees are paying a tax for their HC that it's cheaper than if the employer pays an insurance company - but that makes no sense. To achieve the same profit and the same employee after tax income, assuming the same medical expenses - costs exactly the same.

No - the difference is either in offering more cost-effective services or in offering less services. The OMB suggest that preventive healthcare is not a significant cost saving feature (tho' it is far more humane that the present US system). There are certainly cost savings available if we first kill all the liability lawyers, but they are the biggest supporters of US HC reform. A few years ago when I worked tangentially with that industry, Cleveland had the same number of MRI machine as all of Canada. The cost savings by offering less services seem obvious.

But that's the basic point. "Free Markets" will often conflict with one another. Allowing health insurance companies to profit without restraint directly affects the ability of citizens to take entrepreneurial risk: they can't leave their current job and lose their health insurance, they can't afford to cover employees...etc.

Health insurance companies as a group are in the lower half of all industries for profit margin. The paranoia of the left is that all money must be ill-gotten and therefor all market activity is evil. The reason why your hypothetical is highly improbable is that if one insurer charged more for greedy profits, their competitors would take their business at lower price. It happens all the time, tho "greed" isn't a valid explanation.

I've worked in several startups, sometimes as a principal and ran my own business for over a decade. There is no unavailability of insurance plans as you claim. I checked just 3yrs ago and at that time I found about 15 choices in my state with prices ranging from ~$6.5k/yr to ~13k/yr for family coverage - with corresponding difference in coverage. The only problem is that a lot of people have an a employee/sheeple mindset and they don't realize that their employer is paying half the social security+medicare load and also a lot for h.insurance and benefits. They don't realize that health care is very expensive.

No one is restrained from entrepreneurial risk by having to pay their actual costs for services used. This is a normal part of market forces. Your idea is that we make someone else pay for these services and that allows free-market entrepreneurs to flourish. Instead all you are doing is using the power of government to subsidize uneconomic start-ups and create uneconomic businesses - a waste of time, effort and money. Hey - you could ferment corn ethanol in your bathtub and distill it in your kitchen - and be profitable if only someone else would pay for all your necessities. That's a looney argument. The point of a biz is to pay for all expenses and also collect enough profit to justify the use of capital and risk.


Sorry but at ~$10k/family for a good plan the insurance company is not making a killing. You are in denial about the real problem - the cost of medical services in the US. That is primarily due to lack of free market forces, interference by government, our subsidy in favor of liability law suits, crony capitalism by pharma and lawyers ,lack of transparency in transactions..

Please. It's a very simple notion--food, shelter, health care.

Speaking of goo-goo, what the hell is a "sincere free-marketer?" You have an amusing habit of launching silly terms that have no meaning.

Don't act the fool - we all know what basic necessities are. The goo-goo idea you introduced that that understanding capitalism allows one to "rationally establish a system that balances profit motive with ensuring the basic needs of a country's population". OK so how can your rational balance be established ? As I said it is incompatible with free-markets. You can't have a biz that is 80% profit and 20% charity - it will be beat in the market place by a 100% free market biz (i.e. sincere fm).

If you think the free market fails to provide food - then you need to study the history of the soviet and chinese managed economies.

Perhaps you're missing the definition but free market is nothing but the voluntary exchange of value. Since it's voluntary both parties must judge the trade as advantageous. Over the past 500 years we've developed a good set of rules about transparency, meeting of the minds, remedies for failure to complete the contract - basic tort law.

THis is vapid, Randian nonsense. You're just letting everyone know that you're an *******. By the time any elderly person has reached that stage of life, no matter how they got there, they cannot work to provide for themselves.

We have two options: care for them, let them suffer

.

Once again you've missed the point so thoroughly that you're response is just squeal of ad hominem blather (which is your general style)..

If we create a social structure so that everyone has their retirement paid for, then how exactly do we equitably arrange to pay for this ? How can such vast sums as are necessary be safely managed by generally fiscally incompetent government boobs ? As you will learn in the next decade - that doesn't work.

I, and thankfully most Americans, support programs that care for them. You describe that morality as making no sense. I think that makes you a sociopath

So you believe that sending a government agency to collect my money threatining force and imprisonment, and then using that money to support some profligate unproductive anti-social ne'er do well is a moral act ? No - it's a local matter and shouldn't be federalized.

I guess, then, that half of all Americans who reach the age of 65 are reckless:

That sounds a little low to me.. A shocking fraction of the population seems to spend every dollar they make or borrow with no thought of the future. Their concept of being able to afford something is if they can make monthly payments under the assumption that their income stream and the lack of extraordinary expenses is assured. They are fiscal idiots. They would never consider saving 20% of their gross income, or of giving up the cable or extra cell phones or 8mpg SUVs.

Then when they are in trouble the government arrives with cash-for-clunker, home purchase subsidies, extraordinary unemployment benefits.

Why should I be FORCED by government to pay extra so that lot can live beyond their means ? It's every bit as moral as a lynching. It's mob rule.

Social Security is meant to protect people who cannot work from capricious markets. If everyone's retirement had been placed in private accounts before the stock market tanked in 2008, there would be millions of elderly Americans back in poverty.

You are strawmanning again. I never suggested private accounts for SS. I disagree with then for the reason you state. BUT I also don't view SS as a general retirement plan - which is exactly what ppl currently expect. It should be for the indigent only.

Ideally ppl would be responsible for their own welfare in life and should save for it themselves. That's vastly better than the one-size-fits-all scheme that you prefer. I have family members with conditions that suggest they will never reach age 65 - why should they save for retirement ? I have others who are likely to live into their 90s or better - and they have a far greater retirement need. Any rational insurer offering lifetime benefits would take these differences into account, but SS doesn't.

I am dumber

See - we do agree about something.

You actually claim that some one-size-fits-all remotely managed vast bureaucracy with blatant disregard for basic economics will make better decisions than a family member or the red-cross/local salvation army ? That is the dumbest idea possible. I can tell you horror stories of dealing with a deceased relatives estate and the massive indifference to fraud and crime displayed by SS. The aren't paid to care and no one at SS gets a raise for doing a good job - so the result is just horrible. By contrast no insurance company would ever allow such problems since there is a profit motive involved.

I support social security and medicare. I vote for people who support those programs, I guess I'm a judge.

And guess what? I pay those taxes. The judges absolutely carry the burden. That was an awesomely incoherent rant.

Instead of incoherent, perhaps you should question your ability to read at a 12th grade level. You are not a judge unless you are the one deciding who gets a social benefit and how much. No, you are not a judge.

I don't think that word means what you think it means. Free market capitalism was abolished, nullified, or treated as non-existent in the last case?

Yes abrogate is exactly what I mean. You can't be a little pregnant and you can't have 85% free-market. It's free or not. Both in the great depression and recent the government actions substantially distorted markets and had some blame in the result. Markets bubbles & bursts are not uncommon - they happen all the time. Once in a while on a large scale. Only fools run about like headless chickens and claim there was some systemic problem wit free markets..

Fortunately some people look at the data:

http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

Go to the link. It has pretty charts that are easier to understand than those big, nasty words.

Hahahaha - please read you own chart (I' m told even a simpleton can understand these). All it says is that the GSEs and GinnieMae account for up to ~35% of total mortgages. The proportion of non-performing loans through GSEs is the question. You should try reading some economist other than the highly biased Krugman - has has published several misleading articles on the mortgage issue.

The best data I can find shows GSEs acquired $773 billion of Alt-A loans and private securities backed by Alt-A, amounting to 55% of all such loans originated nationwide over the same period. They are currently having a higher default rate on these than the commercial banks.

Yes the GSEs are a majority player in the problem.

"These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis" - Barney Frank. Could he be more out of touch ?

Of course the bailouts weren't capitalist. The most liberated market in recent history--the shadow banking derivative market--was responsible for destroying the economy.

This is an insane argument. If we let the MBS holders take the damage and didn't bailout AIG and the investment bank - then how exactly did it "destroy the economy" ?

AIG would be out of business and the profitable divisions of ~8 investment banks would be sold to others or put through re-organization by the courts. So what ?? Some WaltStreeters lose their job, some big pension funds and a lot of foreign entities lose up to ~30% of their investment. The bailout destroyed the economy ! Forcing taxpayers to bail out everyone who made a bad decision just keeps the losers in place. The current market is still suffering from this bad decision. We've institutionalized private risk, and we added hugely to market uncertainty. This is destined to damage growth for years to come.

This will be fun: find me the law it violated

.

Federal law 11 USC chapter 5 section 507, you're like shooting fish in a barrel .... really ignorant fish.
http://en.wikipedia.org/wiki/Chapter_11,_Title_11,_United_States_Code#Priority

Chrysler went the Chap11 bankruptcy, and instead of paying the senior secured debt first as is required.by USC 11, the debt holders were forced out at 30-40% of value, while lesser priority debt was paid at as much as 50%. The lesser claimants should not have receive a nickel until he Sr.Debt holders were fully reimbursed. That's the law sweetcheeks.

At this point I'll stop - you obviously lack the ability to understand or produce a grounded argument.

 

[lomiller]

So the same degree of lifestyle mobility that relates to a 25 percentile advance in the UK may only be 6-7 percentile increase in the US. That's a very ballparky relation, but clearly there is a major error in your comparison.

It’s an indication that a high disparity in wealth is an impediment to economic mobility, something we already knew. Essentially what you are saying is that in the US the wealthy are so wealthy it much more difficult to move into or fall out of that wealth class. This is of course nothing more then the type of institutionalized hereditary wealth that marked feudal societies.

Another problem is your choice of quartiles and how you present them. The second quartile would include people from 25% - 50% the 4th would include 75% - 100%. The primary reason the GINI index in the US is high is the top 5% are no much richer then everyone else. This gap is much larger in the US then in the UK. The difference between 50% and 75% is not nearly so great as the difference between 2nd and 4th quartile because the 4th quartile in the US is skewed by that top 5%.

 

[stevea]

It’s an indication that a high disparity in wealth is an impediment to economic mobility, something we already knew. Essentially what you are saying is that in the US the wealthy are so wealthy it much more difficult to move into or fall out of that wealth class. This is of course nothing more then the type of institutionalized hereditary wealth that marked feudal societies.

Please define YOUR quantitative notion of social mobility. My claim is that increasing/decreasing ones standard of living (measured by local purchasing power) requires spanning considerable fewer percentile points of the income distribution in the US vs UK. So perhaps migrating by 7 percentile in the US.

Yes in the US the poor and the wealthy are more extreme than in say Sweden, but if you had a nation where everyone earned between say 40,000 and 40001 (a GINI just above zero), then is would be radically easier to show economic mobility of 25 percentile - but it would be a meaningless change in life style.. That US has a much broader range automatically means that the shifting by a percentile is a bigger change than elsewhere..

The primary reason the GINI index in the US is high is the top 5% are no much richer then everyone else.

But also also by the low earning of the lowest 5% (substantially lower than the UK). Your statement is nothing but an elocution about that the GINI index means. I suspect you intend this as some sort of indictment of the US wealthy, but instead it seems a clear view into an envious persons poisoned thinking. My ideal world is not a place where everyone earns the same.

In the US the 95th percentile (your top 5%) starts at ~$157k/yr of pre-tax family income - well off but hardly the stuff of mansions, chauffers and summers in Provence. $250k is the break for the top 1.5%, Obama's notion of wealthy. Even that isn't wealthy in the sense the caricature implies.

This gap is much larger in the US then in the UK. The difference between 50% and 75% is not nearly so great as the difference between 2nd and 4th quartile because the 4th quartile in the US is skewed by that top 5%.

We're having a semantic problem here. To move from the 2nd to 3rd quartile requires at a minimum a 1 dollar increase in income. Perhaps I should have said "to span the 3rd quartile" or similar. You OTOH haven't defined what you mean at all.

Nearly all reporting uses median income within groups and not average income. The top 5%'s income has zero impact on the median income of the top quartile. The average income of the top quartile ((AGI 2007)) was $153k, not vast wealth, tho' considerably higher than the median ~$90k Neither is vast wealth.

You seem to not realize how few ppl have an income over say $1M, or you are confused about the net worth distribution vs income distribution.

So why are you terrified by he idea that someone earns 1000 times your income ? How does that harm you ?

 

[lomiller]

Your statement is nothing but an elocution about that the GINI index means.

Indeed, but you entirely misses the point that a high GINI index doesn’t support your argument. A high GINI index means there is a wide separation in wealth which goes hand in hand with dynastic wealth, it doesn’t excuse lower social and economic mobility in the US rising GINI and reduced mobility are both metrics saying something is going wrong.

Both of these suggest a society where people are becoming less likely to rise or fall based on their merit and more likely to have their future determined by how rich their parents were.

I suspect you intend this as some sort of indictment of the US wealthy

It’s an indictment of moving away from an economy and society where people become wealth based on merit.

We're having a semantic problem here. To move from the 2nd to 3rd quartile requires at a minimum a 1 dollar increase in income

1$ is the absolute minimum, the typical value is much higher then that. What you need to be doing is an apples to apples comparison rather then picking cherries. Either compare the top of the quartile to the top of the next quartile, the bottom to the bottom of the next or the middle to the middle of the next.

 

[dudalb]

Jihad Jane and Stevea : The Two extremes of economics. A militant Anti Capitalist and A militant Libertarian...both with an truly incredibly ability to ignore reality when it conflicts with ideology.
Jane is more bizarre of the 2, though. She genuinely wants to live a preindustrial society. Welcome to the Middle Ages, folks.

 

[stevea]

Indeed, but you entirely misses the point that a high GINI index doesn’t support your argument. A high GINI index means there is a wide separation in wealth which goes hand in hand with dynastic wealth, it doesn’t excuse lower social and economic mobility in the US rising GINI and reduced mobility are both metrics saying something is going wrong.the

Both of these suggest a society where people are becoming less likely to rise or fall based on their merit and more likely to have their future determined by how rich their parents were.

Your point is predicated on the ridiculous definition that equal changes in percentile of income distribution correlates with equal economic mobility across nations. That's insane. Movement across quintiles can be a useful comparison within one nation (different regions, different years etc) but not across nations.

1$ is the absolute minimum, the typical value is much higher then that. What you need to be doing is an apples to apples comparison rather then picking cherries. Either compare the top of the quartile to the top of the next quartile, the bottom to the bottom of the next or the middle to the middle of the next.

I compared exactly equal percentile changes of gross income for UK & US. It is apples to apples. I DID compare the top of the 2nd quartile to the top of the 3rd quartile. You objecttion can only be based on your inability to read accurately.

Your paranoiac belief that someone earning more than you implies theft and deceptive is just as ignorant and misguided as assuming that everyone who is indigent is stupid and slothful. Go ahead - move to one the the socialist paradises and send us a note on your experience.

Jihad Jane and Stevea : The Two extremes of economics. A militant Anti Capitalist and A militant Libertarian...both with an truly incredibly ability to ignore reality when it conflicts with ideology.
Jane is more bizarre of the 2, though. She genuinely wants to live a preindustrial society. Welcome to the Middle Ages, folks.

Tho' I lean libertarian, I'm hardly extreme. I've seem many very ignorant objections to libertarianism on this forum, some suggesting Somalia is model for a libertaian state. My suggestion is that a libertarian state would mean very little difference in criminal law, tort law, tho' a substantial difference in government regulation. Yes there are kook libertarians who suggest no national defense ,no police, fire, public roads etc, but of course that is unrealistic and naive.

No the current issue the JJ brings up directly implies wealth redistribution to improve "mobility" in a false sense. Also heavy government regulation for the purpose of preventing bubbles.

The first is based on envy, and amounts to theft. I personally think Bill Gates is a skunk and MS products stink, but OTOH I do not think we have any rights to take his wealth by force of government. If treated in that way then why wouldn't everyone else with wealth move overseas ? Of course every socialist screed begins with an appeal to wealth envy and an appeal to victimhood of classes; this has been traditional since Marx. We've seen it in recent years where unspecified "greed" is blamed as the cause of the financial crisis with absolutely no depth of analysis. Perhaps people have forgotten that the reason they and their pension funds invest is "greed". That the balance price in all investments is the very balance between greed and fear. I an not an Ann Rand'er but greed - the desire to accumulate more goods and value is an extremely important force for good. The free market conditions prevent wealth accumulation except in the case where an even greater perceived value is renderer to others. MS and Bill Gates may be wealthy, but the only way this could have occurred is that they offered products that we voluntarily purchased by others who had a rational basis for their valuation. I might be willing to argue that MS has violated free market conditions by using monopolistic power to damage other companies, but that's not their primary method of wealth accumulation. [[Also monopolies form a very real problem for free markets and for purist Libertarian ideology]].


On the second issue, market bubbles happen dozens of times a year, perhaps hundreds. We only get the public highly excited about the issue when there is a relatibely larger bubble. Didier Sornette and his group have published some astonishing new papers that indicate it's possible to predict when a bubble will 'transition'. They characterize bubbles as hyper-exponenttial growth in valuation, and they use periodic perturbations in the valuation to estimate whe na 'transition' will occur. Transition does not mean "bust", but it means transition to a regime of non-hyper-exponential growth. For example the semiconductor industries in the 1970s and perhaps 1980s were a bubble, but thetransitioned to more normal growth patterns without a "bust". Biotech has had bubbles without busts. Gold prices have recently had a bubble without a bust.

So why do we imagine that the Fed (or whichever agency is assigned oversight power) is soooo brilliant that they can identify financial bubbles in advance ? Why do we believe that they can manage these nacent bubbles into a benign state without also managing benign bubbles (ones that don't bust ) in a manner that causes lack of growth ? The best and brightest private analysts with their own fortunes on the line failed to see the bust coming; so why is some GS24 so much more brilliant than the rest of the financial community ? The Obama/Dodd/Fwank approach makes no sense.

It all does make for a great parade of demagogues... wagging their fingers are failed businesses which they kept on life-support with public dollars just for the purpose. Spinning tales for the economic illiterates that if it wasn't for their heroic actions of spraying a fire-hose of public assets at the problem that the economy "would have failed" ((unprovable alternative futures seem an integral part of demagoguery)).

Now after our Congress "invented" TARP funds almost from thin air, they are using the repaid funny-money for additional spending. Insane fiscal behavior !

 

[Tippit]

So why do we imagine that the Fed (or whichever agency is assigned oversight power) is soooo brilliant that they can identify financial bubbles in advance ? Why do we believe that they can manage these nacent bubbles into a benign state without also managing benign bubbles (ones that don't bust ) in a manner that causes lack of growth ? The best and brightest private analysts with their own fortunes on the line failed to see the bust coming; so why is some GS24 so much more brilliant than the rest of the financial community ? The Obama/Dodd/Fwank approach makes no sense.

Financial bubbles are defined as trade in high volumes at high prices which are inconsistent with intrinsic value. Since the Fed controls the supply of currency in which market bubbles are denominated, they play a pivotal role in the creation of bubbles. Since identification is part and parcel of creation, it should be obvious that the Fed is "brilliant" enough to identify the financial bubbles of its own creation. Since all bubbles which are the direct result of monetary inflation merely represent an expropriation of wealth, they cannot ever be benign, and must therefore always be malignant.

 

[timhau]

Financial bubbles are defined as trade in high volumes at high prices which are inconsistent with intrinsic value. Since the Fed controls the supply of currency in which market bubbles are denominated, they play a pivotal role in the creation of bubbles. Since identification is part and parcel of creation, it should be obvious that the Fed is "brilliant" enough to identify the financial bubbles of its own creation. Since all bubbles which are the direct result of monetary inflation merely represent an expropriation of wealth, they cannot ever be benign, and must therefore always be malignant.

... and with this, we leave the 'Economics, Business and Finance' section, and enter the 'Conspiracy Theory' section. Congratulations... or something.

 

[Tippit]

... and with this, we leave the 'Economics, Business and Finance' section, and enter the 'Conspiracy Theory' section. Congratulations... or something.

Or, you don't understand the basic supply and demand model, which illustrates why the price of money must fall (or the price of certain assets inflate to a bubble) when the supply of money is increased, all else being equal. The idea that the Federal Reserve wasn't aware of the housing bubble it was directly responsible for, is ludicrous.

 

[drkitten]

Or, you don't understand the basic supply and demand model, which illustrates why the price of money must fall (or the price of certain assets inflate to a bubble) when the supply of money is increased, all else being equal.

I suppose that's an alternative hypothesis. Given that tim's never made any major economic errors that I can recall, whereas you've never made anything but major economic errors, a rational reader would go with hypothesis #1.

 

[drkitten]

So why do we imagine that the Fed (or whichever agency is assigned oversight power) is soooo brilliant that they can identify financial bubbles in advance ? Why do we believe that they can manage these nacent bubbles into a benign state without also managing benign bubbles (ones that don't bust ) in a manner that causes lack of growth ?

Perhaps you'd be kind enough to point out some of these "benign bubbles." That's a phrase one doesn't often hear, usually because "growth," per se, is not a marker of a "bubble."

The best and brightest private analysts with their own fortunes on the line failed to see the bust coming;

Actually, most of them did. They just couldn't tell the exact timing, and were trying to run it down to the wire -- so many of them got burned. There's an old adage on the Street that is relevant here -- "the bulls get rich; the bears get rich; the pigs get slaughtered." Remember that the market was still showing a profit until it didn't; if you want to squeeze that last 1% out of the market, you need to be invested until just before the crash.

so why is some GS24 so much more brilliant than the rest of the financial community ?

Different incentives. The GS24 isn't interested in squeezing the extra 1% out of the market; he's interested in preventing the crash, which puts him directly at odds (since he would probably be trying to prevent that extra 1% from being squeezed) with the guys running the money.

Given recent trends, it's not that hard to identify bubbles that are forming; when the financial press starts to tell us about how old valuation schemes are no longer applicable and that "the [market-wide] rules have changed," it's a pretty good sign that there's a bubble. This would have correctly spotted the dot-com bubble, the real estate/housing bubble, and (independently) the derivatives bubble. I'd be interested to know what "benign bubbles" you think this particular metric would have identified....

 

[stilicho]

At this point I'll stop - you obviously lack the ability to understand or produce a grounded argument.

So are we all agreed that the global economy is in the beginnings of a recovery?

 

[MikeMangum]

It’s an indication that a high disparity in wealth is an impediment to economic mobility, something we already knew. Essentially what you are saying is that in the US the wealthy are so wealthy it much more difficult to move into or fall out of that wealth class. This is of course nothing more then the type of institutionalized hereditary wealth that marked feudal societies.

So true. I mean the richest people in America all inhereted their wealth; people like Bill Gates (co founder Microsoft), Paul Allen (co founder Microsoft), Larry Ellison (founder Oracle), Steve Ballmer (the first business manager at Microsoft), Michael Dell (founder of Dell), Warren Buffet (founder of Berkshire Hathaway), Michael Bloomberg (founder of Bloomberg industries), Sergey Brin (co founder Google), Larry Page (co founder Google), George Soros (currency speculator ), Phil Knight (founder of Nike), Sheldon Adelson (property developer), Jeff Bezos (founder Amazon.com), Steve Jobs (co founder Apple), etc., etc.

Wait, what?

 

[TraneWreck]

So true. I mean the richest people in America all inhereted their wealth; people like Bill Gates (co founder Microsoft), Paul Allen (co founder Microsoft), Larry Ellison (founder Oracle), Steve Ballmer (the first business manager at Microsoft), Michael Dell (founder of Dell), Warren Buffet (founder of Berkshire Hathaway), Michael Bloomberg (founder of Bloomberg industries), Sergey Brin (co founder Google), Larry Page (co founder Google), George Soros (currency speculator ), Phil Knight (founder of Nike), Sheldon Adelson (property developer), Jeff Bezos (founder Amazon.com), Steve Jobs (co founder Apple), etc., etc.

Wait, what?

That's right, because a list of fifteen names in a country of 300,000,000 people will most certainly count as substantial evidence.

 

[drkitten]

That's right, because a list of fifteen names in a country of 300,000,000 people will most certainly count as substantial evidence.

Well, when you have no data to support your point, you have to fall back on cherry-picked anecdotes.

 

[TraneWreck]

Well, when you have no data to support your point, you have to fall back on cherry-picked anecdotes.

And it's such a hilariously revealing cherry-picking.

Let's assume that half of the 300 million people are children, not working. Let's further assume another 50 million are too old, this leaves a working population of 100 million (obviously this is too few, but just for the sake of argument).

That means the upper 1% of income earners will have a population of 1 million. Mangum chose to make a generalization from a sample of .0015%. And that's with the numbers skewed in his favor.

 

[MikeMangum]

Those people are all from the top 50 of the Forbes 400 list of wealthiest Americans.

The point was that most of the wealthiest people in the country (those that are ridiculously, filthy, stinking rich) didn't start that way. Only a very small percentage of those people inherited that wealth...most of them created it, and a significant portion created their wealth in an industry that didn't even exist when they were born.

1 William Gates III 50,000 53 Medina Microsoft
2 Warren Buffett 40,000 79 Omaha Berkshire Hathaway
3 Lawrence Ellison 27,000 65 Redwood City Oracle
4 Christy Walton & family 21,500 54 Jackson Wal-Mart
5 Jim C. Walton 19,600 61 Bentonville Wal-Mart
6 Alice Walton 19,300 60 Fort Worth Wal-Mart
7 S. Robson Walton 19,000 65 Bentonville Wal-Mart
8 Michael Bloomberg 17,500 67 New York Bloomberg
9 Charles Koch 16,000 73 Wichita manufacturing, energy
9 David Koch 16,000 69 New York manufacturing, energy
11 Sergey Brin 15,300 36 Palo Alto Google
11 Larry Page 15,300 36 San Francisco Google
13 Michael Dell 14,500 44 Austin Dell
14 Steven Ballmer 13,300 53 Seattle Microsoft
15 George Soros 13,000 79 Westchester hedge funds
16 Donald Bren 12,000 77 Newport Beach real estate
17 Paul Allen 11,500 56 Mercer Island Microsoft, investments
17 Abigail Johnson 11,500 47 Boston Fidelity
19 Forrest Edward Mars 11,000 78 McLean candy, pet food
19 Jacqueline Mars 11,000 70 Bedminster candy, pet food
19 John Mars 11,000 73 Arlington candy, pet food
22 Carl Icahn 10,500 73 New York leveraged buyouts
23 Ronald Perelman 10,000 66 New York leveraged buyouts
24 George B. Kaiser 9,500 67 Tulsa oil & gas, banking
24 Philip Knight 9,500 71 Beaverton Nike

ETA: I also wanted to point out that the 3rd and 4th generations of the very wealthiest don't really show up on the list. The 3rd and 4th generation of inherited wealth seems to follow a basic pattern: start off with an insanely large pile of money, end up with a much smaller pile of money.

The Forbes entry for William Randolph Hearst III (#220) starts with this line: "Grandson of newspaper baron William Randolph Hearst watching family fortune continue to dwindle."

There's only 1 Rockefeller that shows up on the list, and that's down at #147. Considering that (adjusted for inflation) his grandfather was the richest person in history, he's way down the list. There is no Carnegie in the list, and Andrew Carnegie was the second richest person in history. There's no Vanderbilt on the list, and the only Ford on the list is not related to Henry Ford.

 

[Tippit]

There's only 1 Rockefeller that shows up on the list, and that's down at #147. Considering that (adjusted for inflation) his grandfather was the richest person in history, he's way down the list. There is no Carnegie in the list, and Andrew Carnegie was the second richest person in history. There's no Vanderbilt on the list, and the only Ford on the list is not related to Henry Ford.

Don't let Rockefeller's position on any Forbes list fool you. His grandfather's motto was "Own nothing, control everything". They have dispossessed most of their great wealth into foundations and trusts which they control, but don't technically own (and thus, don't pay taxes on). They use vehicles such as the Rockefeller Foundation to wield political influence in virtual anonymity.

 

[The Central Scrutinizer]

... and with this, we leave the 'Economics, Business and Finance' section, and enter the 'Conspiracy Theory' section. Congratulations... or something.

Next stop, Jewville!!1!!11!!11

 

[stevea]

Financial bubbles are defined as trade in high volumes at high prices which are inconsistent with intrinsic value. Since the Fed controls the supply of currency in which market bubbles are denominated, they play a pivotal role in the creation of bubbles. Since identification is part and parcel of creation, it should be obvious that the Fed is "brilliant" enough to identify the financial bubbles of its own creation. Since all bubbles which are the direct result of monetary inflation merely represent an expropriation of wealth, they cannot ever be benign, and must therefore always be malignant.

There was a bubble (by your definition) in swine flu shots recently - but the fact that these are denominated in dollars has nothing to do with the bubble. Monetary policy would not correct the valuation. The current issue, the Fed is now supposed to police the non-FedReserve banks for risk, but there is no objective measure. The Federal reserve is likely to make similar errors in evaluating secondary market securities risks as investors..

Perhaps you'd be kind enough to point out some of these "benign bubbles." That's a phrase one doesn't often hear, usually because "growth," per se, is not a marker of a "bubble."

I already did in post 126. The semiconductor industry valuation increased at hyper exponential rates (Sornette's definition of bubble) in the 1970s. They transitioned away from these extreme valuation growth rates without a major crash. That's not just benign, it's a net positive that we can grow a new industry at such rates. The problem I proposed is that the Fed is not clever enough to distinguish the next benign/positive semiconductor bubble from the next dot-com bubble. There have been two little bubbles and busts in wheat prices since 2002 - benign.

You might enjoy this, tho he and his collegues have a lot of good web papers.
http://www.amazon.com/Why-Stock-Markets-Crash-Financial/dp/0691096309
The book is a little dated compared to his recent work, but the point is that bubbles can be characterized as hyper exponential growth in value, and end in a "regime change" which may involve reduced growth, negative growth or a bust.

Actually, most of them did. They just couldn't tell the exact timing, and were trying to run it down to the wire -- so many of them got burned. There's an old adage on the Street that is relevant here -- "the bulls get rich; the bears get rich; the pigs get slaughtered."

That's a trivial but true statement We all know the market will go up and down ,we just don't know when .... and of course it's meaningless to claim that we "know" anything useful on that basis. If investors actually believed that the risk of a bust was large they would have sold. That they didn't sell is proof that they did not see the risk of a bust as sufficient to act on, up to the actual bust. If you think that pro investors are dumb enough to buy-and-hold while risk rises to unacceptable levels you are wrong.

If you consider the dot-com bubble/burst then one can easily argue that there is no solid ground for the "intrinsic value" that Tippet claims is the key. It's based on future growth and that is fundamentally unknowable except ex post facto. For example Yahoo value had some hiccups, but it was never vastly overvalued. OTOH the valuation of JDS Uniphase (a fiber optic supplier) took a huge harsh crash - the valuation was IN HINDSIGHT far beyond the "intrinsic value". Who is brilliant enough to foresee the future clearly enough to distinguish these ? Obviously not very intelligent highly motivated investors. Just as obviously not the Fed.

So I disagree. Yes Goldman-Sachs seems to have been the first to actually act on the increasing risk and they got away half-scorched. But their very exit was in part the trigger for the bust. Nearly everyone else was caught flat-footed. Your argument that they "knew" but didn't sell isn't a realistic description. More accurately many investors had increasing concern about risk (uncertainty of risk, not knowledge), but not enough to justify selling.

The other point is that a bust is NOT the necessary consequence of a bubble. The growth estimations can be realized and also become easier to estimate ... so then the high pricing can stabilize and value pricing becomes more easily estimable. Sometimes the punchbowl is emptied by 10pm and everything works out fine. Again see Sornette.

Different incentives. The GS24 isn't interested in squeezing the extra 1% out of the market; he's interested in preventing the crash, which puts him directly at odds (since he would probably be trying to prevent that extra 1% from being squeezed) with the guys running the money.

Anyone invested in MBSs or the securitization would gladly have given up 1% to avoid the sort of risk involved IF THEY SAW IT. They didn't evaluate the risk accurately and neither would the Fed.

OK well you got a lame quote in so here is mine - Generals always prepare to fight the last war. Similarly we can arm the Fed to examine risk in investment banks and secondary securities, but that just means that growth will be curtailed there and the risk and some bubble will appear elsewhere. Actually it always comes from an unexpected source, the watched pot may not boil, but there are plenty of unwatched pots. We are chasing the problem farther into the hidden spaces where it may be more damaging.